Pittsburgh Technical Council

5 Key Considerations When Negotiating a Licensing Agreement

5 Key Considerations When Negotiating a Licensing Agreement

Article Published: November 16, 2015

By Susan Hartman | Buchanan Ingersoll & Rooney | Shareholder, Commercial Contracts & Technology Transactions Practice Groups

Screen Shot 2015-11-16 At 1.16.35 PMLicense agreements can be a great way for a start-up company to generate revenue from sources other than the founders/funders. Start-ups can license their technology separately, or as part of a collaboration with another company. For example, two companies may decide to cross license technology so that each company has a better opportunity to commercialize their own technology. Although the complexity and scope of these types of arrangements can vary widely, there are five basic provisions most license agreements share:

Exclusive vs. Non-exclusive

An exclusive license is more valuable to the licensee (the party receiving the license rights) than a non-exclusive license because exclusivity enables the licensee to invest in the technology without others benefiting from the investment. But because exclusivity also creates more concerns for the licensor (the party granting the license rights), before granting rights to an exclusive license, consider the following:

* Should you limit the exclusivity to a certain market/use or geography?

* What other potential opportunities are you giving up if you grant this exclusive license to this licensee? Is it worth the risk? Remember: if you grant an exclusive license, it may preclude entering into other, more lucrative, licenses in the future, so do so carefully.

* Will this exclusive license limit the value of your company to potential investors or purchasers?

* Will you be able to terminate the license agreement (or convert an exclusive license into a non-exclusive one) if the licensee does not generate the revenue you are expecting?

Read the full article and learn about the other basic provisions most license agreements share at Buchanan Ingersoll & Rooney’s Startup In-Formation blog.

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