The Lawyer: John Burns
Let’s talk contract with John Burns Partner and Solicitor – at law firm Gateley.
Why does the industry need specialist IP lawyers?
Unless you have the requisite legal and industry knowledge you can end up with an agreement that does not achieve the necessary balance to ensure that a successful relationship will be established between the licensor and the licensee. It is all too easy for an inexperienced lawyer to miss potential pitfalls which can result in the relationship between the parties going forward being marred with difficulties, uncertainty and potentially ill feeling.
The overriding objective for both parties should be to ensure that they obtain a real benefit from the agreement and that the agreement creates complete certainty as to both parties’ rights and obligations.
What are the key things that both licensee and licensor need to be aware of?
Without going into any too much detail, typically, the areas of a brand license that require the most careful consideration are as follows:-
- What is being licensed? The agreement should leave no doubt whatsoever as to what property the licensee is being granted rights to. If the agreement is at all uncertain in this regard, then ultimately, both parties may be at risk.
- What type of licence is being granted? The agreement should set out whether the licence is exclusive, non- exclusive or sole and the licensee should ensure that it is in no doubt as to what each of those terms mean. In a nutshell; An exclusive licence means that, as regards the rights granted under the agreement, only the licensee is entitled to exercise them; A sole license means that both the licensor and the licensee are entitled to exercise the rights granted under the agreement and a non-exclusive license means that the licensor is entirely unrestricted as regards exercising and/or granting to other parties the same rights as those granted under the agreement.
- Where is the license to take effect? Frequently there will be some form of territorial restriction upon the activities of the licensee. The parties need to ensure that the extent of the territory granted does not lead to problems for either party. If too small a territory is granted, it may result in the licensee being unable to make a sufficient return from working the licence. Alternatively, if too a wide a territory is granted then this may result in the property being under exploited.
- How long should the license last? Whilst there are no hard and fast rules about how long a licence should last for, there can be real downsides if the parties get the duration of the agreement wrong. For example, if a license is too short then the licensee may find it is unable to recover its investment. Too long an agreement may result in the licence becoming “stagnant” as far as the licensor is concerned.
- What is being paid? The area where disputes most frequently arise in licensing arrangements is in respect of royalties. I cannot stress enough how important it is that the agreement is completely accurate and clear as regards the method of calculation of royalties and how and when these will be paid. From a licensor’s perspective, in order to ensure they are able to check that they being paid everything that is due, the agreement should contain detailed and robust rights of audit in favour of the licensor.
On that note… isn’t it about time we nail those numbers down?