When should I get a Licensing Agreement?

If you are granting or being granted permission to use a product, service, content or brand, you will need an agreement documenting the terms on which these rights are being licensed.

Why is it Important?

Licensing commercially valuable assets has many advantages over the outright sale of the same. Not only does it permit licensors to maximise revenues and profit from the additional exploitation of the licensed material, it also enables them to retain ultimate control over the licensed rights. In addition, certain licences (e.g. pertaining to registered trade marks) are not effective unless they are in writing and signed.

What it is / what should be included?

Licensors will want to identify and carefully define the scope of the licence being granted and, in exchange, receive fair and proportionate compensation for their benefit. Conversely, licensees will want to ensure they have the rights they need to exploit the licensed material as intended. The parties must think carefully about the scope of the rights granted and the boundaries within which they may be used. Here are some of the key terms to consider:
  • Subject matter and extent of the licence. Often this will center around intellectual property rights, such as copyright, trademarks or patents. Are the rights granted exclusive/non-exclusive, or limited to use in a particular manner or territory?
  • Should quality controls be imposed on the licensee? The protection of a licensor’s reputation, integrity and goodwill is fundamental.
  • Payment. Often this is structured on a royalty basis, related to the number of sales made. Is there an advance and will it be offset against royalties? Are minimum targets, or maximum royalties to be included?
  • Marketing and promotion. Will costs be shared? Will the licensor have a right of approval over advertising materials used?
  • Technological upgrades and improvement. Who owns these? Are they covered by the license or subject to further payment?
  • Do the licensed rights need to be registered? Failure to notify the appropriate registry of licenses of registered intellectual property rights within a certain period may prejudice the licensee’s rights.
  • How long should the licence last and when can it be ended? Insolvency and violation of the agreement are common triggers for termination.
  • What warranties and indemnities are necessary? Licensees will want a guarantee that the licensor owns and has the ability to license the intellectual property involved and that they will be indemnified against third party infringement claims in this respect.
  • Confidentiality. This will be particularly important if the licensee is privy to sensitive information.
  • Is Sub-licensing permitted?
Exclusive licences may violate UK and/or EU competition laws if the parties’ market power is significant and the practical effect of the license arrangement affects or distorts competition. It is crucial that parties do not fall foul of these laws.

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