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License Agreements are often used to help small business owners get their product or concept to consumers. This document is simple to make and will help you protect your interests. Use the License... Read more

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Making a License Agreement

  • What is a License Agreement?

    License Agreements are often used to help small business owners get their product or concept to consumers. This document is simple to make and will help you protect your interests.

    Use the License Agreement document if:

    • You want to provide usage rights to your intellectual property to another person or entity.
    • You need to create an exclusive or non-exclusive agreement with another for use of your property.
    • You want to provide usage rights within a specific geographical area.
    • You need to set up a royalty agreement for use of your licensed property.
    • You want to provide usage rights, so another can manufacture your product

    A License Agreement is most often used if one person has ownership of a business concept, software, app, or new product that they want to be able to take to market with the help of another party. A License Agreement allows another business to have access to the usage of that licensed property.

    Other names for this document:

    Licensing Agreement, Software License Agreement, Trademark License Agreement

    License Agreement Considerations

    While making the document using our template is simple, there are some things to think about while you are putting the contract together. You want to be able to create a beneficial agreement for everyone and if you are the property owner, you'll want to ensure that your interests are protected. Also keep in mind, that this is a working document that may change a few times during negotiations.

    When putting together your License Agreement, consider the following:

    Duration of contract and termination terms
    You'll need to decide when the contract begins and when it will end. Also, you'll want to write into the contract the actions that may terminate the contract. Most will allow a few discrepancies if they are resolved quickly, but it is up to you to decide what may terminate the contract.

    Exclusive or non-exclusive license rights
    There are a few ways you can define license rights. Exclusive means that only the person or company you are contracting with and you have rights. Sole rights, would mean only the other party would have rights. This option is rarely used since most people want to continue developing their product or idea. Non-exclusive rights would give you the option of providing rights to others.

    Geographical restrictions
    Some properties have regional applications. You may want to restrict use in your area to prevent competition. Or you may want to provide rights to others in more than one region. This is often the case with franchises. Some agreements may include a noncompete clause, as well.

    Property usage
    You will need to define how the other party may use the property. Can they sell it? Can they alter it and if they do, will you have rights to the altered version?

    How will royalties be calculated
    This section outlines how you will be paid for the rights to your property. Will you take one lump sum payment? Will get receive a certain amount or percentage per item? Often to protect their interests, people will write in a performance clause. This clause may stipulate that a certain level of performance must be met, or they could lose rights. Additionally, some people outline what is expected in terms of reporting and if they have rights to an audit.

    Property modifications
    Often the company you provide rights to will want to improve or alter your property. You can define what kind of changes you will allow, such as whether they can rebrand it. If they make improvements, you'll want to ensure that you have rights to the improved version. You may also want to think about how much it will need to be changed to become a new product entirely.

    Will arbitration be used to settle disputes?
    If disputes arise, how will they be handled? In many cases, the parties choose to use arbitration. Hopefully, everything goes well, and you are able to work thought small disagreements, but you should have a plan in case things don't go well.

    A warranty is basically a guarantee that you are going to deliver what you promised in terms of the property. If it is software, it should do what you said it does and should be error free. If it is a physical piece of property that will be replicated, it should be an unblemished, final version.

    Your intellectual property or invention loses value if everyone has access to it. To protect your property, you might want to ask the other party to agree to a non-disclosure clause. It is in both of your best interests to protect the licensed property. Sometimes this type of agreement is also called a confidentiality agreement.

    In addition, the original property owner may demand to be covered in the other party's business liability insurance, so they are protected if either party is sued.

    Many lawyers also advise that it should be your business that signs the agreement and not yourself personally. If you have not yet incorporated, we can help you with the necessary paperwork.

  • What properties can be licensed?

    Most business property can be licensed, including intellectual property. The most common types of licensed property include:

    • Trademarks: A trademark license protects your trademark and how and where it can be used.
    • Digital assets: This includes things like software and apps.
    • Copyrights: This protects original work including artwork.
    • Patent license: This protects what many would call an invention.

    Trade secrets are considered intellectual property, but they generally cannot be licensed. You normally have to use non-disclosures to protect them.

  • How do I get my property licensed?

    Before you can enter a License Agreement, you must first have the license. The first step may seem obvious, but often people are so excited about their idea or product that they rush through this important step and this is making sure no one else has done it yet. Spending time researching similar products or ideas can help the licensing process go more quickly. You'll also want to protect your asset until you can get it licensed, so no one else copies your idea. The next step is to apply for a patent, trademark or copyright depending on what you need to be licensed. We offer Intellectual Property resources and Trademark services to help you with the process.

  • Should I hire an attorney?

    If you have an idea or product that you think others might want to exploit or copy, it is worth consulting with a lawyer. In addition to having a lawyer help you apply for your license, you will also want to consult with one to help you to make sure your License Agreement is fair and suits your needs. They may see things you forgot to include or may discover areas that may lack the protection you need. Additionally, it is possible that the company you are looking to work with will have a lawyer or legal team, so you may as well have one, too.

  • What is an unlimited License Agreement?

    This type of license agreement is most often associated with software deployments. Unless your property is software or an app, you'll likely not need to concern yourself with it. Basically, an unlimited License Agreement means that a software provider (or SaaS) is allowing a company to have unlimited downloads or user access to their software. If software is your property, you may want to decide how your partner is allowed to distribute it.

    Quality control and compliance

    You'll want to ensure that if someone is manufacturing or altering your property that the results are up to your standards. If the work is not up to your standards and they fail to comply in a timely manner, this often results in termination of the agreement. You'll benefit from thoroughly defining what your expectations are and what happens if they do not comply. In some cases, you may have to terminate the License Agreement and find another business to work with. If you do find yourself in a dispute, it is wise to talk to a lawyer.

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