Licensing – what to consider

When determining the scope of a licensing arrangement it is important to establish the various obligations that each party will bear and the extent of responsibilities that one party may owe to the other.

Below is a brief outline of the areas that ought to be considered prior to forming any legal relationship:

  1. What is to be licensed or franchised? This will be important where there may exist different elements to an overall product. Where there are several parties that may be involved in its production you will need to ensure that there is no overlap. In any event setting out clearly what exactly is to be licensed will avoid ambiguity and dispute in the future.
  2. Any field of use restrictions such as:
    • Identify the particular market in which the licensed product will be manufactured/sold. For example this may be in respect of commercial sales in a business to business context only (i.e: not for sale to the general public) or restricted only to particular market sectors.
    • Particular technology only. The licence may be for particular elements within the product e.g: the production and/or sale of the widget A technology only. Another licence may be available for widget B.
  3. Geographical Territory. This will determine the particular territory in which the product will be sold, eg: throughout the entire EU (current and/or future states), or through nominated countries (either within or outside of the EU, etc). Careful consideration will need to be given to any artificial barriers that may lead to hindering the sale of the product between member states and any competition law prohibitions.
  4. Duration of the licence agreement. Careful consideration will need to be given to the pros and disadvantages of short and long term agreements. This is often reflected in the type of payment plan agreed upon.
  5. Exclusive or non-exclusive license? Where exclusive status is sought then the licensee ought to be responsible for enforcing your intellectual property rights and a higher payment plan is usually expected. Non-exclusive licensing may provide better competition and increased sales of the end product.
  6. Any provisions for the grant of any sub-licensing. Consideration as to whether any consents or approvals are required. Consideration ought to be given to any standards criteria, monitoring and termination rights.
  7. Acknowledgement of the licensor’s rights. This will assist the licensor to retain ownership of all / particular nominated intellectual property. It is sensible to avoid any ambiguity and any implied ownership rights by the licensee!
  8. Improvements clause:
    • Will the licensee be authorised to make improvements to the product?
    • Who will own these improvements?
  9. What preferred payment provisions will be required:
    • Royalties
    • Lump sum payment
    • Milestone arrangement, eg: exponential increase in relation to numbers of units manufactured/sold front-loaded/ back-ended payments performance related, etc.
    • Combination(s) depending on various factors.
  10. Infringement action. Who will be responsible for taking action against unauthorised manufacturers/ distributors intellectual property infringers, etc?
  11. Termination provisions.
  12. Dispute resolution provisions.Â
  13. Jurisdictional provisions. This is important if the licence extends to other territories outside of the UK.
  14. Will the licence agreement be governed by UK law?

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