5 Reasons Why a License Agreement Might Be a Way to Expand Your Business

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License It red vehicle vanity plate to illustrate official authorization, approval or certification for a patented or copyrighted product

License It red vehicle vanity plate to illustrate official authorization, approval or certification for a patented or copyrighted product

Expand Your Business With a A License Agreement

You’ve just opened a business and have been operating less than 5 years, but are convinced the way to grow your business is via franchising.   Whether you are a restaurant, pet store, or have a developed an exciting piece of software (think Windows), licensing might be a better way to expand your business.

#1 Reason – You Can Still Enjoy Your Own Business

If you license your trademark/product to a licensee, you are not responsible for the operation of the licensee’s business and therefore you are free to concentrate on the expansion of your individual business.  For example if you love cooking, you can still concentrate on developing new recipes and wowing your customers.  You are still operating YOUR business.   As soon as you become a franchisor you are an administrator of a franchise system that will include such things as setting up franchisee training, operation manuals, vendor agreements, advertising programs and royalty agreements.   You become a business administrator because you regulating everything from store appearance and floor plan as well as providing support to the franchisee.

#2 Reason – Licensee Costs Are Much Lower Than Franchisee Costs

It can be easier to attract people who would like to operate under a license agreement rather than a franchise agreement because the costs are not nearly as high for the prospective licensee.   Licence costs are much lower because the licensee does not receive a turnkey business.  This lower cost can be an attractive reason for business people to look for a license arrangement v/s a franchise.

#3 Reason – Variety of License Options

As the licensor you have variety of ways to offer your trademark or intellectual property and the value to a prospective licensee depends on what is included in the license agreement.  It’s crucial to get legal advice on how to set up your license agreement so that it is fair to each party.

#4 – Quicker Path to Expansion

Because a license agreement is easier to set up than a franchise system, it is less disruptive to your existing business operations and easier to bring licensees on board at an earlier stage in your business development.   In other words you don’t have to be in operation for at least five years with a substantial track record and company stores before you consider licensing your intellectual property.

#5 – Increase Brand Name Recognition

Your brand recognition will have more significant value if it is seen in more than one trading area. For example, CrossFit ™ affiliates are developing the CrossFit branding, but each affiliate is free to set up their individual gym with a unique look. CrossFit, Inc. licenses the CrossFit name to gyms for an annual fee and certifies trainers. Affiliates develop their own programming, pricing, and instructional methods.

License checklist

If you are considering licensing your trademark/intellectual property there are many items to think about.  Here is a partial checklist of things to consider

1)  Naming the parties in the License Agreement

2)  Include a Whereas Clause:

3)  Definition Clause

4) Rights Clause

5) License Restrictions

6) Territory

7) Terms of Agreement

8) License Fee

9) Representation/warranties

10) License Infringement

11)  IP Definition

12)  Non-disclosure agreement (confidentiality)

13)  Abitration Clause

14) Termination Clause

15) Force Majeure

Each country will have its own legal framework for license agreements.   This checklist is only provided as a guide to help prevent potential conflict in the lifetime of the license.  Defining the key terms up front in a sound agreement will avoid arbitration or litigation should the arrangement go sour at a later time.  Do not consider do-it-yourself legal documents if are considering a licensing arrangement.   Seek out a trusted lawyer in your local business community to draw up the appropriate legal documents.

If your business is in Canada here are the top 10 tips for effective licensing of trademarks.

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