Licensing agreements: what to know before signing a contract

New inventions are often considered to be the life blood of any business venture. The allure of new products and services drive public interest and along with it the economy. It’s because of this, as well as the promise of turning a profit, that many entrepreneurs have gotten into inventing.

But as so many of our readers will tell you, simply creating an invention is only the first step. There are patents and trademarks that must be sought, advertising to consider and potentially even discussions regarding a business startup. Encumbered by state and federal laws, entrepreneurs often need legal advice when it comes to moving forward with their ideas, which is something we hope to provide today.

In today’s post we wanted to touch on one aspect of the invention process: licensing agreements. For those who do not know, licensing agreements are contracts between two parties, one who wishes to sell their invention and one who promises to help the other party achieve this goal. The first party licenses the rights to produce the invention to the second party who then produces, advertises and sells the product for the licensor.

There are certain things you should consider though before signing a license agreement though, which is what we wanted to highlight for our readers today. The first thing to consider is what type of licensing agreement you want to make. Do you want a one-time payment for your invention or would you like to receive continued royalties for the lifetime of the agreement? Perhaps you’d rather sell your idea outright, which is another thing to think about.

Another thing to consider is how involved you want to be after the invention is made. Do you want someone else to sell your product while you collect payments or would you rather manufacture and sell the product yourself? It’s important to know which way is best for you because it will determine whether you should enter into a licensing agreement or not.

Because of their complexity, entering into a licensing agreement without proper legal knowledge is generally considered a bad idea by most and can result in potential litigation, which is something we ope our readers will keep in mind.

Source: Forbes, “Should You License Or Produce Your Invention?” Jack Lander, Oct. 24, 2006