Intellectual property licensing: What you should know

When entering into a licensing agreement, both licensors and licensees should consider several factors.

From personal artists and small business owners to major corporations, many entities have intellectual property, which gives them exclusive rights to an artistic work, story, musical piece, mark or name. In some cases, an intellectual property owner may decide to license out their rights to a third-party for a fee or for exchange of services. Licensing out intellectual property may help businesses start up, expand, reach new markets and improve the overall quality of their goods and/or services. There are some things business owners should know, however, when licensing their intellectual property to others.

Licensing agreements

When an intellectual property rights owner, or licensor, decides to share the rights of the property with a third-party, or the licensee, they enter into a licensing agreement or partnership. There are several types of licensing agreements. According to the World Intellectual Property Organization, these include the following:

· Copyright license agreement

· Technology license agreement

· Trademark licensing and franchising agreement

Licensing agreements can be customized to meet the specific needs of the licensor and licensee, and so there may be other types of partnerships that do not necessary fall within these categories.

Royalties and quality control

Licensors and licensees alike should understand how royalties are calculated before entering into a contract. Since royalties are based off of the business's net sales, it is crucial that both parties know how much will be deducted from the gross profit. The net sales are then multiplied by the royalty rate, or the agreed amount that the licensee will pay the licensor. If the licensor does not produce a product or service that meets the terms defined in the licensing agreement, they are not approved for sell.

Accuracy and negotiations

It is important for the licensor to keep complete and accurate licensing files from the beginning. If there is ever a licensing dispute, these files can often give the licensor an advantage. Furthermore, if the licensor ever decides to sell his or her rights or business, the well-maintained files could lead a potential buyer to sign a contract. In some cases, licensors are not open to negotiation on the contract. However, negotiations over price and terms may encourage more licensees, and therefore, help the business owner collect more money to put aside for future endeavors.

Simplifying the process

If you are considering entering into a licensing agreement, it is vital that you pay close attention to detail during the process. One mistake may bring problems later down the road and could cause a huge financial penalty. An attorney in Georgia who handles business law may be helpful in walking you through the process and making sure you leave no stone unturned.