The Legalities Of License Agreements

By March 4, 2019General

If you’re an inventor there’s a good chance you want to license your product but navigating through licensing agreements might appear confusing and understandably so.  Licensing requires specific legal language, approvals, and channels that need to be negotiated properly on your behalf.  I spoke to patent attorney Chris DeBacker, to get an understanding of the legal side of license agreements.

The legal contract between the the licensor, and licensee, allows the licensee the right to produce or sell goods, apply a brand name and/or trademark or use patented technology owned by the licensor.  In business, the licensor almost always has the power since the brand, trademark and/or invention belongs to them, yet problems can arise if the agreement is not correct, clear or concise.  Licensing agreements are complex and the best route is to hire an attorney with experience in creating licensing agreements but there is pertinent information inventors need to know within the agreements.

Within intellectual property licensing (trademark, patent, copyright, trade secrets), there are generally three (3) types of licenses: 

  • An exclusive license where the licensee is the only party who can practice the rights conferred through the license.
  • A sole license is the same as an exclusive license except the licensor retains the rights to use the intellectual property as well, but cannot further assign to other parties.  
  • A non-exclusive license grants the licensee the ability to use the intellectual property, but the licensor can grant this right to multiple parties.  This is common with famous trademarks and copyrighted works as multiple companies may want to use a logo or piece of art (e.g. sports team branding).

Mr. DeBacker has seen these agreements go poorly due to mistakes.  “One of the biggest errors I’ve seen…..was where the party listed as the licensor did not actually own the intellectual property that was being licensed.  The licensor was one of multiple entities created by its owner, and the intellectual property was actually assigned to another entity.”

Mistakes like these can be costly to an inventor because there is usually a clause in agreements regarding a financial arrangement to pay for use of the license.  To avoid problems like this Mr. DeBacker suggests, “For individual inventors especially, including clauses that allow the licensor to regain their rights (especially in an exclusive license scenario) if the licensee fails to meet specified sales numbers or suitable growth of the product being licensed. Otherwise the licensor can be locked into a bad license agreement for years with no recourse.” 

A license agreement covers a mulitude of different areas and should benefit both the licensee and licensor.  Firstly, a license agreement should clearly indicate what is being granted from the licensor to the licensee (e.g. patent, trademark, and/or copyrights).  This can be done in the body of the agreement itself, but it is also common to include an appendix or exhibit at the end of a license agreement listing clearly all of the intellectual property included in the license.  

Clauses found in licensing agreements include:

  • The agreement absolutely should include an initial term, after which the agreement expires.  
  • The agreement could include clauses which allow for automatic renewal or early termination of this initial term depending upon certain events occurring.  
  • The agreement should clearly identify who is the licensor and who is the licensee.  
  • The agreement must include what the licensee is giving to the licensor in return for the grant of the license (e.g. money, services, or some other compensation).

These are just a few of the clauses that can be found in an agreement, Mr. DeBacker told me.  There are many other clauses that can be included, such as; quality control clauses, confidentiality clauses, return of equipment clauses, but these are the core parts of a license agreement. 

When it comes to licensing your product not all companies are always what they seem.  Hiring an intellectual property attorney who knows the ins and outs of licensing agreements will help protect your product.  If you’re not ready to hire an attorney there are endless resources online such as the United Inventors Association where anyone can view a sample product licensing agreement document.  In the end, the only person protecting your product will be you.

 

Chris DeBackers’ practice encompasses all aspects of intellectual property protection with a background in construction and engineering.  Mr. DeBacker has experience in all ranges of intellectual property protection, including software, agricultural, electrical, medical, as well as toys and consumer products.  He enjoys working with start-up companies to protect their intellectual property and has contacts to help inventors with manufacturing and marketing their invention, as well as access to mentors in the Kansas City area for new inventors.  Mr. DeBacker has been involved with the Make48® inventor’s competition since 2016.  To contact The Law Office of Mark Brown for more information visit their website at https://midwestip.com or call at (913) 248-4477

 

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