Companies have different strengths. The company with creative, technically trained executives may turn out marvelous products that they have little idea how to market, while other companies may be marketing whizzes with little product flow. Out of this may be born licensing or strategic partnering transactions.
Licensing may involve patents, trademarks, copyrights (including copyrights in software), or trade secrets and know-how. Different legal doctrines and issues will arise in each of these types of transactions. The primary business issues that need to be resolved may include:
- Is the license exclusive or non-exclusive?
- What is the royalty rate? Are there any lump-sum license fees? Are they to be credited against future royalties?
- What is the duration of the license?
- For what field of use is the license being granted?
- What territory is covered?
- Who is responsible for warranty coverage and customer support?
- Who is responsible for enforcing any intellectual property rights that may be involved?
- Are there any performance targets, such as sales volumes, that the licensee must achieve to keep its license rights alive?
Legal issues will also need to be covered in the text of the license agreement. For example, what representations and warranties will the licensor provide? What audit rights will the licensor have? What level of efforts must the licensee exert to promote the licensed property? How should the parties allocate any legal expenses associated with enforcing intellectual property rights (or defending against claims of infringement)? How does the licensor assure itself that the licensee’s quality control is adequate?
Strategic partnering refers to special business relationships that, while close, are in fact something less than a true partnership. They typically involve one company assisting another in making sales to the first company’s customers. These relationships often involve the payment of sales commissions, and require particular attention to issues of quality control and customer support and maintenance. Since both companies will be selling to the same customers as a team, each company has an interest in how well the other satisfies the customer. Because the companies are not truly partners in the legal sense, they must take care in presenting themselves as separate entities to the customers, so that they do not become liable for each others’ obligations. In addition, many of the issues present in a licensing relationship are also present in business partnering.
In summary, collaboration with others through licensing and strategic partnering can be a very good practice, but must be undertaken with great care. Sunstein has experience in guiding businesses through the complexities of licenses and strategic partner relationships. Please contact our Business Practice Group if you have questions about these business strategies.