HTP Graphics

Licensing-2014

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Payment Provisions Section 6 The payment of the current royalties means that the product is not competitive in terms of price. This may be relevant if you have charged a fixed royalty. If, for example, you have charged £2 per item sold by your licensee and interest in the market falls to such a degree that your licensee is only able to obtain £3 for each item – your licensee may want the opportunity to reduce the royalty to ensure it receives a fair level of profit from its sales. Negotiation Tip If your licensee is pushing to have this kind of provision in the licence you may want to ensure that the royalty will only be reduced if the drop in market interest is through no fault of your licensee. Variable Royalties You may want to include some form of sliding scale (increasing or decreasing) for royalties dependent on, for example, the quantities of products sold or the number of processes used. For instance, if sales reach certain relatively high levels, then the royalty rate payable reduces. By doing this, you will provide an incentive to the licensee to maximise its sales or increase its initial investment. If you are in a particularly strong bargaining position, you may want to impose a minimum royalty level. This means that if your licensee does not pay a certain amount of royalties in a period of time (usually one year) then the licensee would have to pay the difference between the royalties it has paid and the minimum level. It is also possible to include other consequences if the minimum level is not met – such as terminating the licence or substituting a non-exclusive licence for an exclusive licence. 44

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