Licensing 101: Standard Terms Part 1
11 Sep 2023
24 November 2014
All you need to know about standard terms in a license agreement – Part I
As to other material terms in a standard licensing deal:
TERRITORY
Licensing Agreements are almost always defined by where a product is sold, rather than where it is made – so from a licensor’s perspective (whilst the two elements are equally important), they will probably want to confirm that the proposed licensee has excellent distribution into the Territory & relevant channels, and then looks at the licensee’s product quality, design capability and innovation.
- Where the product is actually made usually depends on the product category, and the destination territory’s relative success in producing this product and/or what trade barriers exist to the importation of that product. EXAMPLE: Thailand still has a fairly robust plush business, thanks to barriers to import and concomitant structure of the domestic industry (ie, there are no plush distributors of note in Thailand, only plush manufacturer & distributors – and they have no incentive to sell plush they haven’t made themselves).
- Consumer taste and preferences in a given market also influence the relative competitiveness of domestically produced product versus imported. EXAMPLE: South Korea and Japan have retained relatively more of their own branded food production relative to most other modern trading markets, primarily because Korean and Japanese consumers remain relatively more particular about the origin and quality of their food.
- Finally, also a given market’s critical mass to consume a particular product category affects whether it can support a domestic industry, or whether it will largely rely on imported products. EXAMPLE: Small Singapore has long since become an almost 100% import market for most consumer products because, for one reason, the market itself is not big enough to support economies of scale in manufacturing pricing.
More on “more standard terms in a license agreement” next time.