Tip #2: Do some investigation and due diligence on your potential new business partner before signing anything.
Before signing on with a new licensee, ask yourself the following questions:
- Does this relationship make sense?
- Does it further your strategic plans for your invention or brand?
- Have you investigated the licensee?
- Are you comfortable with this licensee’s finances, credit history, legal situation (corporate governance, pending lawsuits, etc.)?
- What about their reputation in the industry and their continuing ability to perform?
- What is in this deal for the licensee? Why are they so anxious to sign a license with you? Do they need you more than you need them?
The answers to these questions affect not only how high a royalty you can charge this licensee and how strong a negotiating position you have, but also whether or not you should be partnering with this company or individual at all.
In addition to the licensee’s finances and reputation, there are a myriad of other factors to consider as the two parties get to know each other. It may sound old-fashioned or clichéd, but there are practical reasons for a courtship before heading down the aisle.
For example, you should determine where the licensee will manufacture or source components and finished products. Are your intellectual property rights protected in those jurisdictions? You may wish to make some countries off-limits to manufacturing and sales, simply because the danger of counterfeiting or losing your IP rights is too great (e.g. China) or perhaps due to a history of human rights violations (e.g. Myanmar) and the consequent damage to your reputation (e.g. Kathy Lee Gifford, Nike, and alleged child labor/sweatshop issues, or environmental impact issues).
Get to know your licensee before you’re already signed, sealed, and delivered.
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