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Drafting a Good License Agreement for Your Product

March 01, 2012 | Comments: 0 | Views: 147

Licensing agreement is a contract whereby the innovator, writer, composer, software programmer and scientist allow other people to manufacture, publish and sell copies of their work. It is the protection of the innovators or inventors from other market followers such as cloners, imitators, adapters and the worst, counterfeiters. It is also a way for the innovators or inventors to secure their potential earnings for their creation.

However, the protection of the innovators or inventors will depend on how good their licensing agreement is between their licensees. There have been controversies whereby a licensee only uses the agreement in order to sabotage the product or to imitate the same. And, after the agreement expired, the person granted with the license will no longer renew the same for the reason that the product's value has already diminished or that they have already adapted the product themselves. Thus, the supposed to be consistent million dollar income per year may be gone after two or three years due to a bad drafted agreement.

So, to avoid this awful situation, an innovator or investor should consider the following tips in drafting a good licensing agreement:

1. Investigate the profile of the licensee.

The business owner or inventor must first investigate the status of the licensee and find out whether granting them distribution rights will be more beneficial to the product or not. This is because of the fact that most of the companies who apply for distribution rights are companies situated in other countries. These companies may have other agendas in applying for distribution rights. There have been reports of small and rising businessmen who were victimized by some companies from other countries wherein their product were used as fronts for the illegal business.

2. Give more emphasis to the financial and security stipulation of the agreement.

A good licensing agreement should not just be concerned on how the distributor can position or sell the product in their local market. It must also include as to how the licensor will be paid. If the licensor will not be careful, the distributor would be earning more than him.

A good example of a useful financial stipulation is the "escalation royalty" clause. This is a clause that states that as the sales for the local market increases, the royalties must also increase in proportion of the sales.

As to the security stipulations, a good agreement must include exclusivity clauses. Examples of exclusivity clauses are stipulations that limit the owner of the product from allowing other companies from the same countries to distribute the product as well. Most applicants of distribution rights prefer exclusivity because it can secure their earnings.

Another good example of exclusivity clauses are stipulations that limits the distributor from cloning, counterfeiting, imitating or adapting the product. As mentioned in the previous paragraphs, some licensees only enter into an agreement with the owner or inventor of the product so they can also develop, clone or adapt the product. If this happens, the licensee's products may cannibalize the original product and wipe it out from the market.

Lior Leser, Esq. can help you negotiate a strong licensing agreement that will protect your intellectual property while maximizing potential royalties. An experienced licensing lawyer can help you navigate this important phase of your product's success while focusing on the successful licensing of your million-dollar idea software, music, media or product. Contact us today for a FREE initial consultation. 888-700-2993. g

Source: EzineArticles
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