Last time, we began looking at a recent Virginia case highlighting the significant amount of money that can be at stake in licensing agreements. Without going further into the details of the case, it is evident that a lot of money was at stake in the case, and this says something about the importance of licensing agreements.
Financial arrangements are one of the most important elements of licensing agreements and it is important for businesses to have solid guidance and advocacy when negotiating these terms. Financial arrangements can take various forms, and having an advocate ensures that a business is best positioned to protect its interests.
Some questions businesses need to consider when negotiating the financial aspects of a licensing agreement include:
- Should advance payments be required?
- What royalty rates should be selected? Typically, these range from six to 10 percent, depending on the property involved and the licensee’s experience and sophistication
- Does the business want guaranteed minimum payments or guarantees of minimum sales? This can be used as a requirement for renewal.
One of the strategies a business may want to consider securing as much initial payment as possible. This can be a way to protect the business’ investment even when the company buying the license doesn’t recoup its own costs.
Businesses should certainly take licensing agreements seriously not only as a means to protect their intellectual property, but also to benefit from other company’s use of it. An experienced business law attorney is indispensable in navigating licensing issues.