Understand What is in Your Agreement, and Use the Power That is Yours, by April Mitchell


SOMETIMES, things can become a little tricky and sticky between the licensee (the party receiving a license) and licensor. As inventors and designers, we—the licensor—sign a contract that should be set up to be mutually beneficial for both parties. I find most manufacturers want this as well. But I have learned this reality: Even when things look and sound good on paper, they can still end up less favorable for the inventor. This is because we are not the ones in power.

Licensees’ job is to manufacture and sell our product they licensed for retail. It is their responsibility to pay us our royalty check, which typically comes quarterly. It is their responsibility to send us the quarterly report with the royalty payment so we can see what sales were made, where they were made and how many were made. It is their responsibility to meet minimum guarantees and if not, make up for them at year’s end.

It is also licensees’ responsibility to send us product samples if indicated in the licensing agreement. As you can see, much depends on the licensee. But what happens when there is no followthrough on these responsibilities?

Swallowing a tough pill
Before we can dive into that answer, we must understand what is in our licensing agreement. I recommend that if you have help with your negotiations and contract, make sure you understand what it says and means. (Disclaimer: I am not a lawyer and do not give legal advice or representation. I am only sharing what I have learned and look for in licensing contracts and encourage you to seek legal counsel if needed.) Knowing what is in the licensing agreement and what to do if the contract is breached is important. Understand what a breach of contract means, and when/if you as the licensor have the right but not obligation to terminate the contract.

In my inventing journey, I feel like I have seen it all when it comes to licensing agreements and the odd, disappointing, or awful things that can happen. Some involve first-hand experiences; some involve friends. It is a hard pill to swallow to have licensees tell you they will not be manufacturing the product they licensed from you. It is hard to know that the licensee did not market your product well and that the product did not sell well. It is awful to not be paid for a product that a company is selling that you invented and licensed.

It is tough to hear the company is going out of business, and it’s too bad your minimum guarantee was not met because the licensees are terminating the contract regardless. It is confusing, with a lot of questions and uncertainty, when your licensee is selling the company and you have no idea what will happen with the product involved in your deal. It is tough when the licensee does not get your product to market in the timing that was indicated on the contract. None of these scenarios are easy, It is hard to decide what to do, or what you can do next.

Don’t assume the worst
When anything like this happens, I get out my contract and reread it—as it might have been a little while since I have signed the licensing agreement. I find it important to refresh my memory on what the contract says, and my options if there is a breach in the contract. I like to assume that what has happened is not intentional with the licensee. Every situation is different. I find it best to understand the licensing agreement and not be rash with any decisions. For example, if my royalty payment or sales report are late, I may send an email and ask for the licensee to look into what happened. If an email can’t settle this, a phone call can be helpful.

I find it best to seek open communication with the licensee and work things out, if possible, before bringing in a lawyer. If a product is not manufactured and sold in the time allotted, a minimum guarantee is not met, or royalty payment is not received after several attempts, I personally may seek guidance or help from an inventor advocacy group or lawyer. This is because sometimes a termination of contract may be considered or needed due to the breach in contract. It is also important to know that even though termination of a contract may not be ideal, sometimes it is necessary so you can move on and give another company a go at your product.