If you have invented something and you want to have someone else manufacture and market the invention, a license agreement may be a useful tool. A license agreement is similar to a lease of the intellectual property that is involved. You would retain the ownership of the asset, but you would license someone else to use it. You may want to license someone to manufacture and sell your product into different markets in the U.S. or to other countries while retaining the ability to sell in your main market.

Features of a license agreement:

  • It is important to define the intellectual property involved in the license – It is important to define the scope of the license. Is it exclusive, non-exclusive, limited to certain products or certain territories?
  • You must define the payments to be made. Will there be a front-end fee? Will there be royalties? Are the royalties a percentage of sales or some other amount? Do the royalties remain the same over the life of the license, or do they go up or down over time? Will you have minimum royalties?
  • Define the term of the agreement – What happens if the product infringes someone else’s intellectual property rights?
  • What happens if others infringe the licensed intellectual property rights?

With a license agreement, you are sharing the risk with your licensing partner, and usually you are entering into a long-term relationship, so it is extremely important that you choose a good licensing partner. Good luck!

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