While the thrill of licencing new goods or entering new markets is evident, neither licensor or licensee should ever forget to do due diligence before entering into a new licencing deal. While the field is not straightforward, there are several fundamentals that both licensors and licensees should bear in mind while planning their next great thing.
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Regarding Licensors
If you’re thinking about licencing your product, you should look into possible licensees. The complete background check is one of the most crucial components of licensor due diligence. If your licensee distributes a low-quality version of your product or fails to pay you, your reputation and company will suffer, regardless of how well-crafted your licencing agreement is. And, while you’re attempting to suit and terminate the arrangement, you’re losing out on necessary royalties.
For all of these reasons, be certain that you can confidently answer each of the following points regarding any licensee you are seriously considering before signing that licencing agreement:
Competing Items: Proceed with care if your prospective licensee handles any products that might compete with yours. To manage this level of complexity, your licensee would need to devote a significant amount of time and money to your product. Ascertain that they can and will.
Experience: Your prospective licensee must have relevant experience with both your kind of product and the market for it. Due diligence also entails ensuring that the licensee has access to the marketing and distribution relationships required for your particular licencing agreement.
Finances: If your licensee is unable to create, house, and distribute a significant quantity of your licenced goods while participating in suitable marketing on a big enough scale, they will be unable to fulfil their end of the contract. Examine their creditworthiness and overall financial condition with care.
Reputation: A excellent licensee will help, not hurt, your reputation. Ascertain that your licensee has a reputation for creating high-quality items that meet or exceed your expectations, and that distributors, retailers, and wholesalers give them high ratings.
Regarding Licensees
However, don’t assume that all of the due diligence is on the licensor’s side. When committing to a new project, any licensee makes a considerable commitment of time and money, thus some degree of confidence about the return on that investment is critical. Before you commit your company to a licencing agreement as a licensee, carefully analyse the following factors about the possible licensor:
Competing Licenses: Before you sign on, you should find out whether the licensor has any other licences for the same kind of goods. Will they compete with the one you’re thinking of making if they do? Is this kind of disagreement likely to reoccur in the future if they don’t?
Assessing intellectual property protection is a crucial part of licensee due diligence. Determine if the leased product has any copyright, patent, or trademark protection, and if so, what the type and degree of such protection is. You must understand how IP protection is likely to be challenged and how to defend it (for example, if the trademark is fairly generic it will be attacked on that basis). You must also confirm that the IP address has been correctly registered.
Ownership of Rights: Not every licensor is the creator of the product you’re looking to licence. Check that the licensor has the necessary rights to engage into the particular arrangement you are considering, and that if he is the inventor, there are no existing licencing agreements that clash with or restrict yours.
Reputation and Interest: You undoubtedly adore this product if you’re ready to develop it, but before you sign on as a licensee, make sure everyone else does, too. Examine how it is seen by the general public and if it is affiliated with any individuals or organisations who may jeopardise its reputation.
Originality: Does the product you’re going to invest in have enough uniqueness to set it apart from other items on the market and sell? Is it a fashionable item or one that will survive long enough to provide a solid return?
Remember, no matter whose side of the table you are on, your most crucial step is due diligence. Simply put, if you take the time to think about and thoroughly construct your licence agreement, you will be significantly more likely to succeed in your new endeavour.