A Brief Introduction About the Technology License Agreement
A technology license agreement is an agreement between the licensor (owner) of some technological intellectual property and licensee. The purpose is to allow the licensee to use, change, or resell the property in exchange for compensation. Such compensation will be in various forms such as lump sum royalty or running loyalty or cross-licensing. Here cross-licensing means the right to use the licensee’s technology by the licensor, and it is like an exchange of their considerations.
Who Takes the Technology License Agreement?
People involved in the technology license agreement are licensor (owner) and licensee (another party). The owner is allowed to use the licensed technology when he/she has the exclusive rights over the technological intellectual property. Both the licensor and licensee must receive mutual benefits from the deal, and the deal should go well with other agreements. To achieve success, a licensor has to work and co-operate with the licensee that will help a licensee to incorporate or adapt the technology in a new way.
Purpose of the Technology License Agreement
The primary purpose of the technology license agreement is to take the technological intellectual property like the business concept, software, app, or a new product to the market through another party by signing a licensing agreement. To allow one business in getting access to another company, the license agreement is a must.
There is no standard license agreement since factors like technology, market, licensor, and licensee could vary. But you can use a technology license agreement sample and change it to their own needs. Some of the business owners even seek the advice of an experienced attorney to prepare the licensing agreement. Based on the intellectual property type, the attorney guides you to make the deal. There are four basic types of IP, such as Patents, Copyrights, Trademarks, and Trade Secrets.
Contents of the Technology License Agreement
Before the licensor agrees to the licensing agreement, he/she should look for certain factors or conditions. Based on the type of business, a technology licensing agreement will vary accordingly. The first crucial thing is to mention the restriction factors by the licensor, such as uses, trade channels, sublicensing, etc. The next point is to specify the time duration of the agreement, along with options for renewals. The licensor should also set the minimum budget that he/she needs from the licensee as compensation. The Licensor should mention the budget when the benefit is related to royalties.
In most of the cases, the licensor gets the initial payment from the licensee and the remaining thing as royalties. So, it is crucial to furnish the details related to the formula for such fees. In the license agreement term sheet, the licensor should also include his/her rights to control and change the various activities such as quality, control, assurance, and protection.
The next significant thing in the agreement is to include the duty of the licensee to calculate, record, and report the compensations to the licensor and the licensee should meet the requirements of the licensor. This means the right given to the licensor to audit all those records. When both parties sign the license agreement, then it is the duty of the licensee and his/her agents and employees to keep the intellectual property confidential. All the sample licensing agreements have this point mandatorily mentioned.
Sometimes, the licensor will not accept to assist the licensee in implementing the technology without getting any extra compensation. A license agreement should include the terms and conditions related to this compensation.
Points to Consider While Preparing the Technology License Agreement
When one wants to enter into a license agreement, he/she should have the license first. After getting a license, you can enter an agreement after deciding the type of IP you need, such as patents, copyrights, trademark, or trade secrets. Based on your business, the license agreement template form varies.
So, it is better to consult an experienced attorney while preparing the agreement and ask him suggestions to accept the various terms and conditions mentioned in the agreement. It is significant to say the multiple times in your agreement such as duration of the contract and termination terms, exclusive or non-exclusive rights, geographical restrictions, property usage, the formula for royalties, property modifications, warranties, and disclosure.
Negotiation Strategy
Both the licensor and licensee get the mutual benefits of this agreement. To get some more negotiations, the licensee can consult an attorney and request his ideas to the licensor.
Benefits & Drawbacks of the Technology License Agreement
Pros:
- It will help the licensor to grab the opportunity of getting passive incomes. This is like, as long as the licensee is making money, the licensor also gets money without any interruption.
- The Licensee is able to create new business opportunities by investing less money.
- Technology licensing agreements reduce risks for both licensors and licensees.
- Licensing agreement will help the licensor to get the new market for his products and even the foreign markets.
- An Agreement helps the licensee to market in a unique way of IP better than the licensor.
Cons:
- There is a higher risk of IP theft.
- The Licensee depends on the licensor in most situations.
- Agreement duration will be available for a limited time to a licensee.
What Happens in Case of Violation?
Sometimes, a dispute might arise between the licensor and licensee when the licensee has used the IP outside the scope of the license agreement. Such a disagreement leads to expensive IP litigation(1). This contract damage differs from the infringement.
A licensing agreement is beneficial to both parties, such as licensor and licensee, to earn good profits. It depends on the licensee how he maintains the agreement terms and conditions which will help to decide the licensor for further extending the license agreement with the same licensee. Any licensees must follow the rules of the contract, which will maintain the smooth relationship between both parties. It is always recommended to consult the lawyer by both parties while making the agreement and accepting the terms and conditions.