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What are the elements of a licensing agreement?

Putting together a licensing agreement is an important step to take for many businesses. You will want to make sure that the agreement has all of the basic elements and then some so that nothing can go wrong legally. These agreements can be minor or major and range in what they cover immensely. So, what are the elements of a licensing agreement?

Some of the most common items that should be included in a licensing agreement include the following:

  • Territorial restrictions
  • Exclusivity
  • Rates for royalties
  • Calculating royalties
  • Required advances
  • "To market" dates
  • Options for renewing the contract
  • The length of the contract
  • Minimum sales guarantees
  • Quality control
  • Monitoring
  • Allowances
  • Returns
  • Inventory minimums that must be maintained

An important area of a licensing agreement that should never be overlooked is the financial part. You will want to outline how much payments will be, when they will be due, how they will be submitted and how to handle guaranteed minimum payments. For the most part, royalties will have a range from 6 to 10 percent.

It's not uncommon for a licensing agreement to discuss quality. This could include a clause that states that prototypes must be provided to test and ensure that the final version of the product will be of quality satisfaction for customers.

The licensing agreement must also discuss which party will retain copyright, trademarks or patents regarding the product or service.

If you are preparing to enter into an agreement regarding licensing for a product or service, be sure to have all of the proper elements. You don't want to put together an agreement that has holes or other issues that could lead to litigation in Morristown.

Source: Inc, "Licensing Agreements: The Basics," accessed Feb. 01, 2018

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