Do you have a new design, product or service which you could licence to a manufacturer, or a much larger, more established brand, that could benefit you both? For example, a company which has the marketing and sales capacity through which your product can reach new markets or a manufacturing capability through which you could fast track more production and, therefore, sales? If so, it is maybe time to find out more about licensing and what is involved!
When you create a new design or product you create intellectual property rights so long as you meet the criteria for copyright and design right, which are created automatically. You can, of course register your design rights officially at the intellectual property office. It’s the same with the name you trade under. So long as you meet the criteria you can protect your name with a registered trade mark. Wise, whether you are licensing or not, as what you build up under your own name or brand is your brand capital, a precious commodity!
An IP licensing agreement is created between an IP rights owner and someone who you authorise to use those IP rights. They are called a licensee and you would be the licensor. This is in exchange for revenue, which is referred to as a fee or a royalty.
The most important part of any licensing relationship is what is in the small print, parameters and terms which are fair and to which you both agree to work. A successful licensing relationship should be viewed as a long-term plan from the basis of mutual respect with the small print tied up legally to protect both parties.
ACID’S DO’S AND DON’TS AND “ESSENTIALS” FOR A SUCCESSFUL LICENSING RELATIONSHIP
HAVE YOU ESTABLISHED WHAT IP RIGHTS YOU OWN? Before entering into a licensing agreement with a third party, a simple IP Health Check will help to focus on any patents, trade mark or design registrations which need to be in place prior to a licensing venture. ACID can help!
CONSIDER KEY TERMS TO ENABLE A SAFE AND PRODUCTIVE COMMERCIAL BASIS FROM WHICH YOU CAN BOTH WORK TOGETHER PROFITABLY.
Tempting though it is, never use someone else’s agreements – terms that might suit one relationship could be disaster for another. ACID has produced an industry standard licence royalty agreement after consultation with designers and manufacturers. It is a standard set of basic conditions to which additional specific clauses, relevant to a set of circumstances can be added and included if required. It is a reasonable, professional foundation from which two parties can work together in a licence/royalty relationship. Not reading the small print in any agreement only makes lawyers rich!
UNDERSTAND THE DIFFERENCE IN VARIOUS LICENSING TERMS
By licensing your rights this means that you retain ownership and can, through a licence agreement impose certain restrictions. Be sure to understand the various licensing terms and what they mean.
MAKE A LIST OF ALL DESIGNS TO BE INCLUDED
This avoids any doubt as to which designs are covered. At the same time clarify whether future designs are included.
COPYING – WHO TAKES ACTION AND WHO PAYS THE LEGAL FEES?
Always ensure that the licence clarifies whose responsibility it is to take legal action against a copyist and who foots the bill.
ROYALTIES AND AUDITS – WHO IS PAYING WHAT AND HOW WILL IT BE MANAGED?
Ensure that the subject of how royalties are calculated and whether a royalty management system is in place are included. It is possible to agree either a one-off lump sum or payments of regular royalties or a combination of the two, in the form of an upfront payment followed by royalties. Many successful licensing relationships include a minimum guarantee for royalties in their agreements. Don’t forget there can be a big difference between royalties calculated as a percentage of the retail-selling price as opposed to its wholesale price. A smaller percentage of volume sales is better than a greater percentage of insignificant sales.
Agreeing the terms of a royalty management programme and including this in any licence agreement will ensure that there is compliance with the terms of financial reporting and decrease the likelihood of incorrect royalties being paid to the licensor.
WHICH COUNTRY?
In a global market place, it is possible to licence different companies to sell the same design in different countries. Any licence should clearly state which country it covers and, importantly, which country’s law would apply.
HOW LONG DO YOU WANT THE AGREEMENT TO LAST?
And what happens if either party wishes to end the relationship? In the tricky world of a market dictating a product’s shelf life it may be difficult to cater for market forces, but it is important that both parties have certain safeguards. Therefore it is important to establish realistic licence dates, they can always be extended if required. Similarly, it is important to establish the exact criteria, should either party wish to end the agreement, so that the correct legal mechanism can be included
This is not an exhaustive list but just gives a flavour of some of terms you should consider
ACID has worked with designers and manufacturers to create an industry standard licence royalty agreement which is easy to read – no over complicated legal jargon. This provides a level playing field between parties, allowing a fair framework for both to discuss any modifications and adjustments. Most importantly, a licence royalty agreement, based on actual Court judgements to negate lengthy legal compliance and promoted as a basis upon which specific bespoke clauses can be added. ACID always advises users to consult IP lawyers before adding any additional clauses. The beauty of this is that you can re-use the template for different licensing partnerships.
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