License contracts

Clauses deserve more
Licence contracts form part of the IE agreements and part of the ICT agreements (e.g. licence on your custom software such as an app). License contracts come in all forms. Consider production licences or sales licenses in addition to distribution and agency agreements. But franchise agreements are also partly licence agreements on the trademark, trade name and domain name (think of chains such as Etos, Blokker, McDonald’s). Franchise contracts often also include agreements on other business aspects such as the procurement of goods, the appearance of the outlets, collective ICT acquisition, training, marketing, etc.

The form of the royalty agreements varies. For example, increasing or decreasing royalties derived from a fixed fee or the realised price, a fixed percentage of a product or net profit (provided well defined) but also a fixed lump sum buy out.

Licences are also issued, for example, when you download software or updates or have these installed on a commercial basis. When negotiating licences, we first need to explore the phase you are in. Has the financial section already been agreed on and is a contract “all there is left to do”? Then it is important to remain critical.

Because you can lose money through poor contracts. This can relate to many things: exclusivity, licence registration, transfer to another company, method of payment, territories, marketing costs, liability, guarantees, duration, cancellation, pledge of inventory licensed goods, etc.

The presentation is often simple: “It’s the default licence”, they tell you. Making use of a specialised lawyer who has litigation experience is an asset in negotiations. This can be both in the form of advice in the background and at the negotiating table with the other party. Indeed, it will cost you money, but it will bring out the risks and they will pay for themselves. Clarity, that’s what it’s all about. Short and simple contracts seem appealing. Nevertheless, make sure you find the loopholes and open ends. Contractual freedom is a major benefit, but obviously that freedom is not unlimited. Numerous laws or EU regulations (competition law) restrict that freedom in commercial contracts such as licences.

Fruytier Lawyers in Business has extensive experience with licences and drafts all kinds of agreements on IE and IT, and ICT-related European procurement. Contracting is doing business: a proper understanding of the objectives and requirements; identifying risks and conditions. It is also navigating within business models. Contracting is also negotiating.

Drafting licences is one thing, but properly analysing beforehand what really may or must be done is something entirely different. Contracting is “creating a model” and not just retrieving a “standard contract” from the server. Where is the conflict potential in the licence? This varies by batch or type of product. Also, making agreements on proof – who proves which item – can sometimes make a significant difference.

Insight, overview and experience can help you; send an email to info@flib.nl or call +31 (0) 205 210 130 for further information or a quick scan of your (draft) licence.