3 Key Factors – That Can Make or Break Your Licensing Agreement

A licensing agreement may be one of the most important legal documents that you sign in your business career. These are living documents that need to be closely administered by both sides – licensee and licensor – or they can go seriously awry without the proper steps taken in the beginning of the agreement.

There are 3 factors to pay attention to when creating the agreement. How well these are attended to could make or break your agreement.

Authority

Who has the authority to give approval or amend the agreement? If so, how and under what circumstances. If this is not clear from the beginning, you could be faced with some very unpleasant situations down the road.

It’s a good practice to outline in the agreement that all requests for amendments and waivers to a license are passed to and given by an executive of the licensor in writing. This is important especially when there is a third party involved and guarantees that all parties are fully aware of all proposed changes or amendments.

Additionally a clear statement as to who in the licensor’s organization (or its agent) is able to give approvals should be outlined and that the approvals process is followed to the letter by both parties, including the need for approvals to be given in writing.

Clear Drafting

A licensing agreement should be a clear and concise written contract outlining EXACTLY what the parameters of the agreement are. The language used is of utmost important and phrases that are vague or open to interpretation should be avoided at all cost. Be clear and precise and you will save time and money in the long run.

Understand What You Are Signing

Licensees are often tempted to sign the licensor’s standard form document without review – this is often due to a desire not to incur legal fees or not to be seen by the licensor as a nuisance.

It is important, however, that licensees are clear as to their rights, obligations and liabilities under the agreement from the outset; the impact of an indemnity for example can be enormous and go well beyond what is appropriate or what would be considered acceptable by the licensee if it took advice; a brief review by an experienced lawyer will be far cheaper and quicker than litigation, the costs of which could easily ruin any small business (before one considers management time and aggravation). Further, clauses requiring licensees to seek certain forms of insurance or waivers may need engagement with insurers.

Taking the proper time in the beginning of the contract negotiations and seeking the assistance of the proper resources could save you time and money in the long run.

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