Pay attention to definitions. Make sure the product or process is completely and clearly described so that there is no misunderstanding about what is allowed. In a typical licensing agreement, the licensee undertakes to make intellectual property rights such as technology, brand name or licensee know-how available to the licensee. In exchange for the intellectual property of the licensee, the purchaser usually plays the donor a pre-feeding and/or a licence fee. A licence fee is an ongoing fee paid for the licensee`s right to use intellectual property. An example of a licensing agreement in the restaurant industry would be that a McDonald`s franchisee has a licensing agreement with McDonald`s Corporation that allows them to use the company`s branded and marketing materials. And toy manufacturers regularly sign licensing agreements with movie studios and give them the legal authority to produce action characters based on popular similarities of movie characters. Most licensing agreements also deal with the issue of quality. For example, the licensee may enter into the contract conditions that require the purchaser to provide prototypes of the product, mockups of the packaging and even occasional samples for the duration of the contract. Of course, the best form of quality control is usually achieved before the fact – by carefully checking the reputation of the licensee. Another common quality provision in licensing agreements is the method of disposing of unsold products.
If stock items are sold as cheap knockoffs, this can damage the licensee`s reputation in the market. Among the many types of business relationships that one encounters in the modern business world is the concept of a licensing agreement in which one party gives another party the right to use, in a commercial context, a right, a trade name, a method, a product or other asset for reciprocal purposes. The person or entity granting the right is called a “licensee.” The person or entity that obtains the right is called a “licensee.” The bargaining power of both parties to a licensing agreement often depends on the nature of the product. For example, a film studio that would grant the image of a popular superhero to an action figure maker could have considerable bargaining power in this negotiation, as the manufacturer will likely benefit from such an agreement. The film studio therefore has the lever to take its business elsewhere if the manufacturer has cold feet.