Licence Agreement Risks

Most licensing agreements assume that licensees pose a greater threat to licensors than the other way around. Aside from the bargaining power of brand owners, which allows them to charge more in a contract than they will themselves, most licensing professionals assume that the real risks of the deal come from scandal-prone licensees such as clothing manufacturers who rely on work in sweatshops or toy companies whose gadgets suffocate toddlers. Licensees are generally not allowed to argue (or if they argue that they are generally ignored) that licensors pose the same risks to them. Should that be the case? Should licensees seek to protect themselves from scandals and potential mistakes of the licensors in whose brands they invest – and not be willing to do business if they are not granted? That depends. In some agreements, the licensor accepts some reciprocity and generally undertakes not to do anything that negatively affects the licensee`s activities – but does not avoid any negative effect on its own trademarks or activities. Why could a licensee not terminate its own contract if the licensor itself infringes the value of its own trademark – the only reason a licensee is willing to become a licensee. The only good reason is that the licensor is powerful enough to reject the application; but it doesn`t hurt to ask. In the broadest sense, licensing is an important form of entry for companies considering international expansion. A license agreement gives a foreign company the right to manufacture and/or sell the goods of another company in its country.

The agreement may also cover production and distribution in more than one country. The licensee assumes the risks and invests in facilities for the production of the goods as well as for the management of other links in the supply chain in order to deliver and even sell the goods to the end user. The licensor usually receives a royalty for each unit produced and sold. As there is little investment for the licensor, this method is considered an easier way to become an international or global company. No smart licensor gives everything they can keep. But licensees who believe that even a seemingly harmless license could potentially expose them to embarrassing, controversial, and even loss of trademark protection for the trademarks they assume should spend some time thinking about the risks and requiring them to protect the trademarks they license as a liability. Licensees shall take into account the risks posed by licensors where those risks are evident. But all of these risks – such as the risk that the word “Redskins” will become offensive, as well as the risk that even Austin Power will push the boundaries of decency too far – are not always obvious. However, there are ways in which a licensee can at least demand protection from it. It can take a lot of effort and determination to find the right licensee.

To give your product the best chance of success, you need to think a lot about evaluating potential licensees and structuring your license agreement. Service companies can also benefit from licensing agreements. In the aviation industry, many of the codeshare agreements that allow airlines to sell their respective seats are similar to licensing agreements. Airlines and other companies enter into such agreements when they need help commercializing new technology, expanding a brand franchise globally, or creating a marketing image. Rather than simply entering a new or international market, licensing is a faster way to develop a market and dominate market share. It can also allow companies to gain a wider market for their unlicensed products. Other potential risks and disadvantages of patent licensing include: – What are the main elements of a license agreement? What are the most important points to consider when negotiating a license agreement? With licensing, you can benefit from the process while focusing your business on what it does best. Even if you use the process yourself, you can make a profit by licensing it in other countries or states instead of trying to expand. All legal and financial risks are the responsibility of the licensee and not of you. Licensors must assess the political, social, economic and religious landscapes of certain countries before signing a foreign licensing agreement. One of the risks of doing business in countries where the political environment is unstable is that the licensor`s overseas activities could be closed or even taken over by hostile governments.

Another risk, although less serious, is that the licensor`s products or trademarks violate the country`s religious sensitivities and do not reach enough customers in this market to make a profit. The release of hot movies like the Lord of the Rings trilogy also triggers numerous licensing agreements and ties between mass merchants and licensors of toys, games, and children`s clothing. .