Ten Considerations To Keep In Mind When Negotiating a License for Intellectual Property

I this week did a licensing program with Rand Brenner, President & CEO at Licensing Consulting Group. Rand is a licensing expert assisting clients in the acquisition and sales of licensing rights. His recent assignments include acquiring licensing rights for clients to several national brands including Major League Baseball, The NFL and NCAA Football.

At the program I discussed ten considerations the parties to a license agreement should keep in mind when negotiating it. Here they are:

1. The license agreement must be a win-win for both sides or it will not work.

2. The more you don’t need to do the deal the more leverage you have when negotiating it.

3. If your sales channel is the Internet you have global rights.

4. Givers get; if you give exclusivity, you should get a higher royalty.

5. Don’t enter into a license without an exit strategy.

6. There is no one magic royalty number whatever the deal.

7. Set a royalty by looking at what licensees are paying in comparable deals.

8. The term of the license should allow the licensee a reasonable time to recoup its investment in the deal.

9. Negotiate with respect to build trust.

10. Take your time so that the license agreement creates a long-term, mutually-beneficial relationship.

Do you have other suggestions to add to this list? Please include them below. Interested in learning more about IP licensing? A useful book is IP Valuation and Management by Weston Anson. More information about the book here.

Also Rand Brenner is replaying our discussion in a series of webinars. For more information click here.

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12 Responses to “Ten Considerations To Keep In Mind When Negotiating a License for Intellectual Property”

  1. J. Kirwin says:

    Thank you, I appreciate this.
    Please expound on the statement, “If your sales channel is the Internet you have global rights.” Do you intend to say that if an infringer who is also a potential licensee uses the Internet to advertise its goods, then the licensor, who owns a registered mark, has no cause for complaint?

  2. Andrew Berger says:

    Thanks for your question. To add a bit to what I said: if a licensee has Internet rights the licensee necessarily can can sell or distribute everywhere in the world because the Internet has no geographical boundaries. Therefore, the licensee has global rights.

  3. Jacqui Rigby-King says:

    I also think it is critical to fix the parameters of the Licence. There are so many varied restrictions and permissions in different licences that even if it is global, rights needs to be spelt out, managed and enforced.
    Jacqui

  4. Amani Elazizi says:

    The licensed rights, should be clear and precise.

  5. Vanessa Ferro says:

    Straight to the point and very useful. Thank you.

  6. Sharon says:

    Thank you for this. I would add that if you represent Licensor, you want rights to approve the final product to ensure that it is consistent with the Licensor’s brand.

  7. Taras Kulish says:

    Question: Will licensing arrangements be caught up by franchise disclosure requirements? If yes, all the time or only in certain circumstances?

  8. Andrew Berger says:

    Taras: you raise a good point.

    A licensor needs to exercise appropriate quality control over the licensee. But when the licensor dictates the ingredients a licensee must use, its hours of operations, its personnel policies and production techniques, among other things, then this significant control may transform the license into a franchise. At that point the franchise disclosure requirements you refer to will kick in.

  9. Money should be the last item on the list to be discussed (or close to it)–other issues such as geography, term, exclusivity, and rights to be licensed will determine how to structure the royalty rate.

  10. Andrew Berger says:

    Ross good point; you can’t decide what the royalty should be till you agree on the other terms you mention. Only then can both sides reasonably project a royalty that will benefit both parties.Thanks for your contribution.

  11. Ed Haddad says:

    The Licensee must insure trademark rights are secure in the licensed territory. Sales minimums must be negotiated to insure the licensee exploits the licensed rights. Approval of licensed products and marketing communications must be included to protect the brand/brand image being licensed. The licensee’s supply chain should be reviewed to promote social compliance with labor and health laws and prevent restricted substances, trademark abuse, etc. Licensee’s operations such as logistics, shipping, customer service, website performance should be reviewed as this will reflect on Licensor’s reputation.

  12. Andrew Berger says:

    Ed: Your recommendations rings true. You first state that a licensee must insure that its rights are secure in the licensed territory. That is exactly the problem Apple now faces in China. As Vivien Chen explains in her guest post on this blog, Apple relied on a trademark assignment for the iPad from one company (Taiwan Proview) even though the trademark rights were owned by its sister company (Shenzhen Proview).

    Sales minimums you suggest are also a good idea to ensure that the licensee does not relax its efforts to sell the licensed product. Protecting the brand image is also necessary though some brands sometimes go overboard as Louis Vitton recently did in response to the use of its mark on a poster promoting a fashion law program at Penn Law School. Social compliance with health and labor laws is also vital as you suggest for obvious reasons. Thanks Ed for your helpful additions to the list.

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