Nuts, bolts of license agreements

score Over the past six weeks, I've been working with Joan on bringing to Rockford her favorite dessert, which she found on a visit with her son in San Antonio, Texas.

She tried to import the product from the San Antonio manufacturer; it's a frozen dessert, so that became rather expensive. In addition, cold storage was required when the product was delivered while waiting for distribution.

Our next move was to examine the likelihood of developing a license agreement for her to have it manufactured in this area and sold at grocery stores in northern Illinois and southern Wisconsin. That process is ongoing, but it's time to review what's required in seeking a license agreement.

A license agreement gives you a right to use someone else's asset or right, or gives someone else the right to use some asset or right of yours. The precise terms of the right are spelled out in a license agreement.

The party that gives someone use of a right or asset or right is known as the licensor. The party that receives the use of that right or asset is known as the licensee.

A common example of a license agreement is one used in connection with the use of software. When you buy a software product, the person is only buying the right to use the software in limited ways. These limits are set forth in the license agreement that comes with the software. Some other typical license agreements: trade name, patent, software and copyright.

If you are interested in obtaining a license or are needing to provide to someone else, consider the following key points that a license agreement should address:

  • Exclusivity or non-exclusivity: Licensors typically resist giving exclusive rights. If they grant exclusivity, the territory needs to be spelled out. And if the license is exclusive, under what conditions or circumstances could it be converted to a nonexclusive one?
  • Term: Explicitly spell out the length of time of the license, plus any renewal rights.
  • Payment: Clearly state any up-front payments, plus any periodic payments that are required to maintain the license. A particular use of the license may require an increase in license payments. For example, software licenses require greater payments as the number of user's increases.
  • Restrictions: Licensors often place a number of restrictions on use of the license, such as use in certain geographical areas for designated purposes. For example, a trade name licensor may grant the right to use a name, but only in a certain city.
  • Infringement: The licensee will want proof that the licensor actually owns the licensed product and that it does not infringe on the rights of third parties.
  • Terminators: The licensor typically defines various circumstances that allow them to terminate the license agreement early, especially if the licensee breaches the agreement.
  • Assignment and sublicense: Depending on the agreement, the licensee may be able to assign or sublicense the license. An assignment typically means a transfer of your rights in the license; a sublicense involves giving someone the right to use a portion of your rights in the license. Most agreement prohibit both without the licensor's approval. Licensees may want to negotiate for broader rights if their business necessitates sublicensing the product or service.
Keep in mind, it's always a good idea to have your attorney get involved in reviewing or amending the licensor's agreement.

Bill Bryan is a counselor with the Service Corps of Retired Executives. SCORE offers counseling, workshops and seminars on small business operations. You can reach Bryan through SCORE, 515 N Court St. 815-962-0122, for information and appointments.


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