Tip 23 – Licensing Agreement Negotiations
Blog By Edward Ayres
Money, Money, Money….might be all you’re hearing when it’s time to negotiate the deal. However, this is where the rubber meets the road, and before you’ll see a single dollar the licensing agreement has to be finalized. Your goal is to maximize the financial earning power of your invention while maintaining a prosperous relationship with the licensee.
During negotiations the terms of the licensing agreement will be specified and agreed to by both parties. There are many criteria and points you must consider during negotiations. For instance, what is the initial length of the agreement and what territory are you awarding; is it only North America or worldwide?
Of course, when I think licensing, I think of royalty payments. During licensing negotiations is when the royalty amount is finalized. A few key points to consider is that your royalty should be a percentage of the sales price. Ensure your royalty is based on sales and not profit. Also, royalty payment due dates should be clearly identified in the contract. Will you receive them quarterly or twice a year?
When your agreement is being negotiated, a non-refundable upfront advance against royalties should be included in the contract. The amount of the advance is of course open to negotiation but a check when you agree to the deal is ideal!
There are numerous other points to be negotiated such as your right to examine their books to ensure you’re being paid for every unit. We also believe negotiators should fight to include language in the contract to ensure you’re paid for any and all modifications, variations and/or improvements to your product. Over the course of time these modifications and improvements are unavoidable, but you want to make sure you’re paid for them.
While negotiations shouldn’t be a “war” it is very easy for untrained negotiators to make major errors that can be quite costly. This is the reason we recommend independent inventors use licensing professionals. The Inventor Process team has negotiated hundreds of contracts, and we’re ready to help you maximize the potential of your invention. Contact us today for a confidential and obligation free consultation. We’re here to help!
We hope you enjoyed Tip 23. We’d love to hear your comments, and please consider sharing this information as it may benefit an inventor you know. If you have questions don’t hesitate to contact us.