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The plusses and minuses of licensing agreements

On Behalf of | Dec 29, 2022 | Business Law And Litigation |

Do you have a copyright, patent or trademark that you would like to make some additional money on? One way to increase the value of your intellectual property is through a licensing agreement. Be careful when entering such agreements. While they can be financially lucrative and beneficial to your business, there are drawbacks as well.

What is a licensing agreement?

A licensing agreement is a written contract where you as the owner of a copyrighted, patented or trademarked material, which allows the other party to use this intellectual property for their own purposes in exchange for compensation, generally royalties.

Licensing agreements contain details on how the intellectual property can be used and how you will be compensated for this use. A well-drafted licensing agreement can prevent disputes on the sale, quality and royalties attached to the licensed property.

Plusses and minuses of licensing your intellectual property

There are plusses and minuses of licensing your intellectual property.

On the plus side, a licensing agreement clarifies each party’s rights and obligations regarding the use of the intellectual property and the payment of royalties. This can save time and money and help avoid potential litigation.

One minus to this is that you could be beheld by a contract for months or even years with a company you ultimately are not crazy about or do not work well with. Another advantage to licensing your intellectual property is that doing so allows you to enter different markets at little cost. It can also allow you to earn a significant amount of compensation in the form of royalties.

However, licensing could stymie research and development as well as increase competition. You could also lose brand power, and poor use by the other company could negatively affect your reputation.

So, if you choose to enter a licensing agreement, ensure it is strongly drafted. Since it is a legally binding document that could affect your business for years to come, you likely want an attorney involved in its creation to ensure it meets your needs and protects your rights.

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