What Are The Risks Of Licensing Agreements

Patenting a production process prevents other companies from using your techniques. However, you can concede your processes to other companies, whether you make cars, chemicals, clothing or cheese. Sharing your intellectual property (IP) rights can be cost-effective, but there are also risks you need to consider. There is no guarantee that a licensing agreement will generate cash. You could give a certain royalty to a licensee and never see anything, because the taker cannot generate sales. Many products are also not licensed, even if they are offered at discounted prices because there is no interest in the product. As a licensee, you may also be faced with returns of damaged goods, which also reduces your total earnings. Most licenses are available for a limited time. Although this period can be 5 to 10 years, there is an expiration date that must be taken into account by the licensee. Is it worth investing time, effort and money in promoting goods or services that may not be available to them at the end of the licence term? Is there a guaranteed renewal rate for the licence, particularly if the expiry date is less than 5 years? There has to be a balance between royalties and revenue, which is useful for all parties involved.

Licensing was designed to reduce the risks associated with the activity for all parties involved. From the licensee`s point of view, there are fewer risks in product development, market testing, manufacturing and distribution. From the licensee`s point of view, there is less risk in the sale and service of what is proposed. None of the parties is required to put their own money into these areas to make a profit, creating a win-win situation for all parties involved. Quality control and compliance. This is one of the most important sections for the licensee. If the products granted do not meet the quality standards set out in the contract, they will not be allowed for sale. Most licensing agreements define the licensee`s quality standards as a test protocol. A licensing agreement gives a licensee the rights to use a product that the donor already owns. Many items can be part of a licensing agreement, including a trademark, patent or even a trademark.

The rights of the taker are fully described in the licensing agreement, which may allow them to sell items, use a trademark or use a particular brand message.