Foreign Licensing of Your Intellectual Property Rights
Created by FindLaw's team of legal writers and editors | Last reviewed February 04, 2021
When entering a foreign licensing agreement, you need to protect yourself as much as possible. They are a great way to expand the market for your intellectual property and to profit from your creation. By partnering with foreign companies who already have a business network in place, all you have to do is give your permission to market your product and then wait for the royalties to start flowing to you. Choose your business partners wisely, negotiate for important terms in the contract, and monitor the progress of the marketing and use of your product.
What Is Foreign Licensing?
When you have created a product or have the exclusive right to a product, trademark, patent, or copyright, you have the right to grant another person or company in another geographical location, to sell, market, or produce your property. In return, you, the property owner, get royalties or other forms of compensation.
Simply put, your goal is to maximize profits and minimize risk. How does this happens when your agreement is with a foreign party? If you contract with a company in Singapore to market your product but it fails to do so, goes bankrupt, or even harms your interests, if you weren't careful in negotiating the deal, that agreement may not be worth the paper it's written on. You may have to sue them in a foreign court, and even assuming you have the resources to do that, you still may not be able to collect what's owed to you.
Only License to Reputable Companies
Always verify the competency of the company with whom you're licensing. Because you likely don't know the company or people personally, you will want to get references and their history with licensing similar products.
Any licensing company should be willing to provide you with a list of clients and possibly even contact information. Get the client's unadulterated opinion about the company and its timeliness, accounting practices, and service.
If a company is relatively new to the field, investigate who's in charge and what kind of business connections they have. If the company is led by a former high ranking executive of another licensing company, it may suggest that the new company is well funded and knows what it's doing. Contact the U.S. Copyright Office if you have lingering questions.
Insist on Certain Terms in the Contract
Once you've determined that a company is reputable, you can move on the negotiating terms for the actual licensing agreement. In addition to general contract terms, you will want to include terms important to agreements with foreign companies. These terms include:
- Choice of law: Insist that the laws of your state (and the United States if applicable) govern should disputes arise. Without such a clause, you may be forced to chase after your partner in whatever country they reside to enforce your rights.
- Jurisdiction: U.S. courts need to have jurisdiction over the people who have a dispute. Foreign companies may or may not have such a business presence here, so you will need to include a clause that explicitly states that the licensing company agrees to the United States exercising jurisdiction over it.
- Arbitration: Arbitration is a quicker, more inexpensive form of dispute resolution where a neutral third party is appointed to resolve the dispute. For example, if you're licensing your music rights to an album, the arbitrator may be approved by a legal musical society.
- Advance against royalties: An advance against royalties is a non-refundable amount that is given by the licensing company up front. You get this advance first and that amount is subtracted from future royalties. For example, if you receive a $10,000 advance, the licensing company won't pay you more royalties until they owe you an amount over $10,000. From that point on, you get paid royalties as sales proceed.
- Method of payment: Avoid the delay and hassle, and insist on wire transfers for royalty payments.Wire transfer helps prevent the foreign partner creating unnecessary delays in payment.
- Accounting. You should have semi-annual accounting statements from the licensing company. Include an auditing provision (giving you the power to have an accountant look at their books to ensure accurate royalty payments). Ask the other party pay for the audits—this incentivizes the company to make prompt and accurate payments. Alternatively, you may also include a clause where you will pay for the audit unless there's a discrepancy of more than 10 percent, in which case the licensing company pays for the audit.
- Release of obligation: Include language that allows you to release that company from licensing your product. The release could be triggered by a certain timeframe (i.e., your product is not being sold in the market within 60 days) or other circumstances you find relevant.
- Termination: Specify a definite term after which the contract ends. In this way, you aren't locked into doing business with one company and you can re-negotiate terms every few years as necessary.
If you are currently negotiating with foreign business partners about a licensing agreement, or are considering doing so, speak to an experienced attorney today. A business and commercial lawyer who specializes in foreign licensing matters can help you negotiate the best possible contract for your situation.
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