Foreign licensing agreement advantages

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ITC Services Trademap. Step 8: Preparing your export plan. Licensing and franchising. Companies that license their manufacturing processes to foreign licensees should understand that their foreign partners might not comply with the same labor practices that are standard in the U.

These procedures include hour work weeks, overtime pay, safe work environments and prohibitions against child labor. When a U. Just as foreign companies might not have the same labor standards as U. Some foreign manufacturers may use substandard or dangerous materials in their manufacturing processes.

Numerous items can be part of a licensing agreement, including a trademark, a patent, or even branding. The rights of the licensee are fully outlined in the agreement for the license, which may allow them to sell items, use a trademark, or take advantage of a specific brand message.

The licensee is able to keep the profits earn by their use of the licensed items. In return, the licensor receives an agreed-upon royalty out of those profits for the ongoing use of their items. Most licensing agreements include a one-time upfront payment for access to the desired items as well.

There are advantages and disadvantages to licensing for both parties to consider before finalizing their agreement. If you are the owner of an intellectual property, then licensing it is an opportunity to create an ongoing stream of passive revenues.

These payments could last for several years without interruption. A licensee can benefit from this type of arrangement because it requires less money from them to start a business opportunity. They can purchase a license instead of outright ownership, then begin to make profits right away. It takes less upfront cash to pay for a license. When a licensee can improve upon a product, they can make even more money off their venture.

Even if the item wanted is a trademark or brand name, the new business benefits from the reputation and consumer awareness of the information. Licensing is designed to reduce the risks involved in doing business for everyone involved.

From a licensee standpoint, there are fewer risks in product development, market testing, manufacturing, and distribution. From a licensor standpoint, there are fewer risks in the selling and service of what is being offered.

When a licensing arrangement is in place, then the licensor is able to get their product into new markets much easier than if they were doing the work on their own. It is much easier to enter foreign markets in this manner, as the license allows for the intellectual property to jump border requirements. That means tariff barriers to entry can be avoided because a domestic company is using the IP, just as the licensor might be using the IP domestically.

However, the majority of agreements encompass similar points, including:. One of the most significant parts of a licensing agreement is the financial provisions contained therein. Payments to the licensor are typically in the form of royalties on sales and guaranteed minimums.

Depending on the licensee's level of expertise and the specific property involved, royalties normally range from about 5 to 11 percent. Although many experts suggest that licensors ask up front for as much money in the form of fees as possible, not all licensors may require a guarantee to meet a certain threshold.

Some licensors use guarantees as a way to renew a licensing agreement. For example, if a licensee meets or exceeds the minimum sales figures, the contract is renewed. If a licensee fails to make its numbers, the licensor may have the option to discontinue the relationship. If you need help with the advantages of licensing agreement, you can post your legal need on UpCounsel's marketplace.