Licensing agreements are necessary for the operation of many businesses in the modern age. The term may bring specific industries or types of arrangements to mind, such as a publisher licensing content from authors and illustrators or the licensing of logos, processes and even recipes in a franchise agreement. However, the applicability is much more widespread. Many businesses across industries license software or web platforms of some sort. Some also license processes for manufacturing and other core operations.
While some of these licensing agreements, like the one you have likely entered into for your CRM, are standard and straightforward, other types of licensing can be complicated and require extensive knowledge of both intellectual property law and the goals and practicalities surrounding the agreement.
Often, a company’s in-house counsel and managers have a strong grasp of the practical considerations and the goals and priorities of each party to the licensing agreement, but do not have the high-level niche knowledge to fully protect the company in negotiating and drafting a complex licensing agreement. Our attorneys have the necessary legal knowledge and experience, and will invest the time to learn about your business and your goals.
Issues to Consider in Licensing Agreements
In a complex licensing agreement, there are a myriad of issues to consider, and some will vary depending on the nature of the business and the relationship. However, there are core issues that must be considered in virtually every licensing relationship, including:
Exclusivity: A licensing agreement may be exclusive or nonexclusive. In some cases, such as a franchise agreement or the licensing of widely-used software, the license is by its nature non-exclusive. However, in areas such as publishing, manufacturing, drug formulas, recipes and others, the core value of the license may lie in its exclusivity.
Limitations: Exclusivity is not a simple “yes” or “no” question. Whether exclusive or nonexclusive, a license is usually limited to a certain time period, a certain format or industry, or within certain geographical bounds. Other limitations may also apply.
Sub-Licenses: In some cases, sub-licensing is permitted and even essential to the licensing agreement. The parties to whom the licensee may grant sub-licenses and under what circumstances must be carefully determined and clearly spelled out in the licensing agreement.
Reservation of Rights: The licensor may wish to or be required to reserve certain rights, such as the right to license the technology or other material for academic research, nonprofit research or humanitarian purposes. Depending on the industry and the nature of the licensed material, failure to include this reservation of rights could invalidate the license.
Modifications: The parties must agree as to whether the licensee is purchasing only the right to use the technology or other material as-is. They may make modifications or integrations to enhance its usefulness to the licensee and/or its customers. Where modifications are allowed, there may be multiple issues to resolve, such as the extent of the modifications permitted and the impact of modifications on brand identification.
Updates: In a simple licensing agreement such as the one you may have for inventory software or a customer database platform, updates generally occur regularly and are included in the license, offered as a subscription or offered only with an upgrade. However, in a complex licensing agreement, the issues may be more complicated, and it may be necessary for the agreement to specify which types of improvements are included in the license and to what extent.
Compensation: Compensation structures in a licensing agreement may be complex, combining up-front payments with royalties that may be tiered and will likely require regular accounting. Thus, the compensation agreement will include not only the terms of the compensation, but also reporting requirements.
Confidentiality: Licensing of software, manufacturing processes and technology may require non-disclosure agreements, which may be complicated by the fact that employees, contractors and others associated with the licensee may have access to varying degrees of information about the licensed technology.
Of course, this is only a partial listing. When you work with an experienced commercial licensing attorney like the ones in our firm, we will walk through all of the possible issues to be addressed. A few additional issues may include provisions for addressing infringement, warranties and assurances and rights of inspection.
Talk to an Experienced Complex Licensing Attorney
Complex licensing agreements may impact the very core of your business. You cannot afford to make mistakes that could lead to costly litigation or even a shut-down of your production or recall of published materials. An experienced advocate at your side can make the difference between a smooth and profitable relationship and legal complications that could slow down or even stop your operations. Contact KPPB LAW today.