Licensing Agreement #4 Term
09-17-09
For the next few weeks I will be breaking down a general Licensing Agreement clause-by-clause: For the beginning of these series of posts read the first one starting Sept 14, 2009. This is the next clause in a Licensing contract:
2. TERM
2.1 This Agreement is for the term of three (3) years commencing on (date) and shall terminate (date), unless an extension to this agreement is agreed upon in writing and signed by both parties. At the end of the term of this agreement, the Licensee and Licensor shall, in good faith, renegotiate any further continuance of the licensing for use of the Property and trademarks by the Licensee.
2.2 Renegotiation of this agreement shall begin between both parties at least ninety (90) days prior to the termination date of this agreement as set in and cited in article 2.1. During this ninety day period of renegotiating the continuance of licensing the Property, the Licensee is restricted from manufacturing additional products using the Property, unless written permission is granted by the Licensor.
2.3 If the Licensor does not respond within thirty (30) days after receipt of such written request for extension from the Licensee, then it will be considered that the Licensor has granted permission to continue production until the end of the term of this agreement.
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Paragraph 2.1 indicates that the Licensing Agreement starts at a specific date and will last three years (it is a good idea to spell and indicate the number of days for clarification. especially if foreign languages are involved). You can request any amount of time limit but keep it as short as possible for two reasons- a) another party or company may become interested in your Property rights and offer more money to license the use of your Property, and b) if the present Licensee desires to continue the license, you can negotiate a larger advance/royalty payment at the end of the present term. Of course the opposite is true for the Licensee, in that, the longer the term of the agreement, the better for the Licensee.
Paragraph 2.2 refers to the requirement that any continuance of the Licensing Agreement must be made in written form and signed by the Licensor (You) and the Licensee. It also forces the Licensee not to manufacture any products they are putting the Licensor’s Property onto during the ninety day renegotiation period unless allowed to in writing from the Licensor. As a Licensee, I would try and make sure the last sentence of clause 2.2 is removed or not in the original contract, since this will stop you from producing your products using the Property ninety days prior to the end of the actual term of the Licensing Agreement.
The extension request information is to ensure both parties are aware that there is a time frame to start negotiating any change to the term period. The Licensee should ensure they register mail the written extension request letter for any continuance of production of products utilizing the Property, because the Licensor would have the ability to state that because they did not receive any notice that Licensee production of products using the Licensor’s Property must stop ninety days prior to the end of the agreement and also that no effort was made to commence renegotiation of the original Licensing Agreement, so the Licensor can refuse to relicense or start negotiations again.
Clause 2.3 Gives the Licensee automatic approval to continue manufacturing their products using the Property if the Licensor does not respond to the Licensee’s attempt to get permission to continue production until the end of the term. Note that this does not give an extension to the Licensing Agreement but just the ability for the Licensee to keep production going until the final term date. If the Licensee desires, they should initiate negotiations for a continuance with the Licensor many months prior to the ninety day notice because the lawyers involved on both sides could take longer than expected to complete and finalize the extension or new agreement if one has been requested by either side (very often this is the case).
Next Licensing Agreement #5 Royalty Provision.
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As most of you know, I am not a lawyer or an accountant and recommend everyone seek their own legal counsel and accounting advice in such contractual matters. I provide other consulting which is detailed on the ‘services’ page of this website.
Hope this breakdown helps you understand the intricacies of a Licensing Agreement. Should you have any questions contact me at info@Playdigm.com – please put ‘Licensing’ in the subject line of your email.