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Licensing Pitfalls

More and more companies wishing to fully exploit their designs are seeking to license their products in order to reach a wider market. However, it is important to consider certain watchpoints before entering into any agreements and to fully understand all aspects of a commercial relationship before assigning any rights.

1 They're my designs!
Assigning the rights in your designs effectively hands all the control over those designs, and the manner in which they can be exploited, to the recipient. The exception is if you agree specific terms with them under which you keep the right to maintain control over certain matters.

2 What licence?
If you do wish to retain more control over your designs, then you should licence them rather than assign them. This means that you retain ownership of the rights and grant others the right to use the designs subject to certain restrictions which you can impose. An exclusive licence means that you cannot use the designs for the duration of the licence - that becomes the exclusive right of the person granted the licence. A sole licence means that both you and the person granted the licence can use the designs. A person who is granted a non-exclusive licence merely has the right to use the designs but cannot take action to prevent anyone else also using the designs. Someone granted an exclusive licence can take action to stop anyone else using the designs.

3 Make a list
All the designs which are to be covered by the licence should be listed in a schedule attached to the agreement. This avoids any doubt as to which designs are covered. If the licence covers future designs then further schedules should be added when those designs are created.

4 Who pays the bills?
The licence should state whose responsibility it will be to take action against someone found copying the designs. Sometimes the cost of this can be shared, as can the proceeds recovered by the copier, but the licence should state how they will be shared.

5 Hidden extras
The licence should set out exactly how royalties will be calculated. There will be a big difference between a royalty calculated as a percentage of the retail selling price of the article as opposed to its wholesale price. Check for further deductions for things such as discounts on bulk orders.

6 Which country?
It is possible to licence different companies to sell the same design in different countries or other geographical areas. The licence should clearly state which country or countries it covers, and should prevent active sales of the designs outside of that territory. It is also important that the licence states which country's law will apply to the licence.

7 How much?
It is possible to agree either a one-off lump sum, or payment of regular royalties on sales, or a combination of the two, often in the form of an upfront payment followed by royalties. If you do agree an upfront payment and royalties, check to see whether the lump sum payment is deducted from future royalties. Also consider using a minimum guarantee for royalties, so that you are paid a guaranteed minimum amount each year even if the royalties actually earned are less that that amount.

8 How long?
This can often be an important but difficult issue, as the shelf life of the design is often not known at the outset. It may be difficult to get a company to agree to continue paying royalties after the period of copyright or design right protection for the design has expired.

9 The last word...
If you want to ensure that the products are being made to your correct design, or to your standards, then include a right to inspect samples before they are put into production. Similarly, you can include clauses which state the manner in which the products will be promoted. You may want to ask for your name to be included on all publicity materials.

10 Remember...
You should always read the whole of the licence and ask if you are unsure of the effect of any of the terms.

Further Information
It is always wise to consult a solicitor who has specific experience in this field and to speak to colleagues who have also gone down this route.

For advice from ACID, call 01531 650 476 or access www.acid.uk.com.

September/October 2010
issue 61
available now