Product License Agreements: The Basics

Product license agreements, whether the product is software, hardware, or simple consumer goods, focus on two main legal areas: contract law and trademark law. The contract part of the deal is pretty obvious, while trademark is an additional necessity in this modern age (where often up to 90% of a product’s value consists of the name or logo on its packaging).

The dealer license, a common product license agreement, is a complicated agreement whose drafters must take special care to outline the rights and responsibilities of each party, otherwise the sure end result is costly litigation.

Here’s what a typical dealer agreement should have:

1) The parties (obviously).

2) The Services: This is a detailed description of the responsibility of each party towards the other. For example: Party A agrees to distribute software in New York for Party A. In return, Party B agrees not to license any other party to distribute the software in New York. Perhaps Party B will also be responsible for updating and providing customer warranties for the software? Ultimately, that depends on the parties…

3) Payment: Who pays whom? At what intervals? What are the penalties for late payments? Who is responsible for dealing with the end customer, collecting invoices, etc…?

4) Additional Guarantees: This is where the parties make additional promises to each other. This is also where a good attorney will anticipate and provide for as many contingencies as possible: should an unforeseen contingency occur, costly litigation becomes inevitable (for example, the dealer’s state passes a new tax on the type of product it sells the distributor and the agreement is not fulfilled). stipulate which party bears the burden of this new tax). best advice: Don’t rely on Google search forms, especially for high-value deals; Hire an attorney who knows your industry and therefore knows what can go wrong.

5) Property rights: This is the trademark law section. The agreement must clearly state which intellectual property belongs to which party. After several years of working together and using each other’s logos on their products, the lines between who owns what can become blurred…

6) Limitation of Liability – This is usually standard language where each party agrees not to hold the other liable for standard failures under the agreement (you can’t deny non-standard failures, like setting fire to the warehouse).

7) Deadline (time): This is obvious.

8) Termination: This is also very important and requires good legal advice. How a relationship ends and what ongoing rights and responsibilities the parties have are just as important and litigation-prone as how the agreement begins.

9) Arbitration and choice of law: These are optional but highly recommended. A strong arbitration clause will ensure that any disagreement goes to arbitration. While arbitration can be costly, such costs do not come close to the years of commitment to motion, discovery and appellate practice seen in traditional litigation.

In short, the main goal of a well-drafted agreement is to provide for as many contingencies as possible to avoid future disputes, and certainly to avoid costly litigation over such disputes.

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