Is Your Licensing Agreement Riddled with Holes?

Taking short cuts to get a deal completed is tempting. Still, the easy way often leaves agreements riddled with holes that later result in disagreements, wasted time and effort, and ultimately a damaged relationship with your licensing partner.

Your licensing agreement is a contract between you and your partner on what you agree to do to successfully bring your IP to the market. It’s your plan, but it’s also a written document designed to avoid litigation.

That’s why it’s important to be clear and specific about your terms. So if there’s a disagreement, it’s clear about how it will get resolved.

It’s also a document that will sometimes outlive the people who made the partnership. Memories fade or people change, and unless it’s in writing, anybody new stepping in can stop or change the deal.

For example, the management of your licensing partner may change. And your agreement is what will keep the spirit of your licensing deal in place when that happens. I was working with one of my clients in negotiating several movie licenses. One of the most important terms in those agreements was the approval milestones, which we tied to guarantee payments. We knew the studios were notorious for sudden management changes, which, if it happened, could delay our approvals and market entry. That’s exactly what wound up occurring on one of the licenses, and it saved the company from getting drained by the guarantee payments.

The market is dynamic, which means your agreement may need to change as well. If your agreement is clear on how you resolve changing market conditions, such as delays in production, hitting the marketing date, or any number of other unforeseen market conditions, it keeps the relationship smooth and the license moving forward.

The agreement is also designed to anticipate what could go wrong. It spells out how potential problems, such as a dispute, late payment, or not submitting a product for approval, will be resolved. It also includes obligations and performance benchmarks such as minimum sales goals or royalty revenues that have to be paid to renew the agreement. The better defined these are, the smoother your licensing relationship will go.

Don’t shortchange the time it takes to structure the right type of licensing agreement. Work with a qualified licensing attorney so they can make sure all the agreement terms are properly written, your rights are protected, the contract is clear, and nothing is open to “interpretation by you or your licensing partner.” If the agreement is riddled with holes, nothing is more draining in both time and money than having to litigate your way out of a licensing agreement.

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