A licensing agreement is an agreement between two parties where the owner (the licensor) of an IP right, e.g. a patent, utility model, trademark or design, gives another company (licensee) permission to use the IP right. The agreement sets out the terms of contract for the licence holder’s IP right, including the degree of accessibility to the right and payment matters (licensing fee).

Preparing a licensing agreement requires a thorough preliminary work. First you must find a cooperation partner. There are many different sources for identifying a cooperation partner and it requires a lot of legwork to find the right one. Obviously, take a good look at the network you have built up. Another realistic possibility is to use this website. Here you can see who wants to sell or license their IP rights (patents, utility models, trademarks and designs) and which companies are looking for IP rights.

There are no hard and fast rules on how you and the other party come to a mutual agreement. The process becomes easier if your own efforts are goal-oriented both towards identifying the right persons of the other party with whom you will be dealing and towards specifying your wishes and requirements most precisely. It is important that you have done your homework on the company you want to cooperate with and have prepared a presentation that is goal oriented and clearly describes how your brand, product or technology fits in with the other party.

It is however advisable that both parties, prior to commencing negotiations, draw up an agreement comprising an non-circumvention agreement, a declaration of intent and a confidentiality agreement, so that both parties are clear about what happens should negotiations fail to reach signature of license agreement.

You cannot act independently without the consent of the other co-owners of the IP right (patent, utility model, trademark and design). They must also give their consent and sign the license agreement when a transaction is agreed upon. It would be typical for the co-owners of the IP right to draw up a co-ownership agreement stipulating the conditions for how the IP right is to be used.

There are no hard and fast rules on how you and the other party come to a mutual agreement about the terms. You are both at liberty to find and agree to the best deal for both parties. It is often a good idea to seek advice from a lawyer with experience in licensing agreements. It may also prove relevant to enlist the help of a professional adviser concerning the technical aspects of the patent, utility model, trademark or design before entering into a licensing agreement.

To reach a mutual agreement on payment issues is an individual process of negotiation. There is no set procedure for attaining agreement on these. It is important that you early on give some consideration to the terms you want, but you must also be prepared to negotiate. Once a mutual agreement on payment has been reached (size of license fee, payment schedule and method) the details should be written into the licensing agreement.

There are no rules for how long a licensing agreement can run for. This is up to the parties involved to decide. An agreement often has an initial period in which neither party can terminate the agreement. After this the agreement can be terminated with a shorter or longer period of notice. The length of notice will depend on the parties’ commercial evaluation, which once agreed upon must be written into the agreement.

It is advisable to consider a decent period of notice. An agreement that can be terminated at short notice could influence the degree to which the licensee is motivated to invest in production equipment, marketing materials and staff upgrading etc. Parties can often terminate the agreement in accordance with specified conditions, which should be written into the licensing agreement. It is important that you and the other party take ample time to specify the requirements for the duration of the licensing agreement and the terms under which notice of termination may be given.

Experience shows that the question of which geographical areas the licensing agreement shall cover sometimes gives rise to disagreement. Therefore it is important to have clear written agreement on this. Also, the agreement on geographical coverage must comply with the rules under the competition act. It could be a good idea to seek legal advice about this.

You can keep an eye on how the licensee behaves and which products he/she is introducing to the market. It is important that the terms of contract for the cooperation are defined with great care and precision so that it is clear when agreements are being breached. It is also a good idea to make sure that the business cooperation is well looked after throughout its duration.

The licensee may want to sublicense to a subsidiary company for example, where the licensee himself is not represented. In such instances it would make sense to give the go ahead to sublicense. However, each situation is unique and requires individual evaluation, as a sublicense means relinquishing a substantial amount of control over what happens to the licensor’s IP right (patent, utility model, trademark or design). Granting sublicenses can often end in complicated problems with the third party, so it is important to keep a close eye on all agreements. One of the terms of the agreement ought to be that the licensor shall first agree to the licensee giving a sublicense to a third party.

Who will defend the IP right in matters of infringement depends on what has been agreed to and written in the licensing agreement. To begin with, one must not just assume that the licensor (IP right owner) is responsible for defending his IP rights. Both parties must agree to who is responsible and ensure that the details are written into the agreement. If it is an exclusive licensing agreement it would be more reasonable to expect the licensee take responsibility for defending the IP right. However, the licensor can rarely free himself completely from assisting the licensee in cases of infringement.

If you own a patent you can take out a patent insurance against infringement of your patent. You can read more about patent insurance here.

What the agreement covers should always be specified in the licensing agreement. A licensing agreement should as far as possible cover all contingencies, including points concerning maintenance/renewal of the IP right. Should you not wish to maintain your patent, you could ask the licensee if he would like to buy your IP right.

It is up to you in any situation to judge whether an exclusive or non-exclusive licensing agreement is the best course of action. An exclusive agreement can be an advantage if you want to establish a close cooperation with a partner, whereas a non-exclusive agreement would be an advantage if you want to spread your product/technology to as many competitive licensees as possible. If you want to enter into an exclusive licensing agreement it could be a good idea to seek legal advice to ensure the terms of contract do not breach the rules of the competition act.

You can send the licensing agreement to the authority that issued your IP right and obtain registration of your right by licensing agreement in the relevant official database. This action of registering licensing agreements is voluntary in most countries. However, in the USA for example, it is legally required to do so for patent licensing agreements to be valid.

This process involves a thorough preliminary work. There are no set answers on how to reach a mutual agreement with the other party, but the process is made easier in part by identifying the right people to deal with from the other party and defining your wants and requirements with great precision

As a rule, it is a good idea to seek legal and/or technical advice in connection with a purchase/sales agreement.