License Agreements: Aim for Fairness — But Words Have Meaning

licensing

It can be said that a licensing arrangement is inherently symbiotic in nature, with the good faith efforts and cooperation of both the licensor and the licensee being necessary for success. The licensor provides its trademark, perhaps some degree of design expertise (particularly in the fashion field), and perhaps also brand customer relations and certain advertising and promotional assistance; and the licensee contributes its expertise in the particular industry covered by the license and possibly its customer relations, its organizational structure and capital resources. The resulting relationship, in a very practical sense, is that of a joint venture or a partnership. Although on one level the negotiation and drafting of a license agreement must be approached as an adversarial process, both parties also should recognize that they will be more likely to view their arrangement ultimately as a success if it strikes a balance, on the one hand, between the licensor’s legitimate concerns for the maintenance of its image and quality standards, for the protection of its trademark and for fair compensation for the rights it has granted and, on the other hand, the licensee’s legitimate desire to exploit the rights granted to it in an economically advantageous manner consistent with industry norms in the applicable market segments and without fear of termination if it is performing in good faith. Ideally, therefore, the parties should approach the negotiation and documentation of the license agreement from the perspective that each of them is looking to make the venture a success for both of them and should recognize and attempt to satisfy the other’s needs.

That said, no matter how much the parties aim for “fairness,” there almost surely will be provisions that a licensor perceives as necessary to protect important interests which a licensee considers unfair, unduly burdensome or overreaching. Before proceeding with an agreement, a licensee must remember that words have meaning and a licensor can seek to force the licensee to conform in its performance to what the agreement says. A licensee cannot rely on its business sense (or gut) to assume that a licensor would “never do that,” even if the licensor assures it that the licensor never has done so before. There also can be no great comfort in the thought that the provision might not be enforceable, since the time and cost involved in adjudicating the issue can be enormous, even if the licensee succeeds. If the agreement requires certain conduct or prohibits certain acts, a licensee should assume that those words control and that, if it ignores them and its licensor’s demands for conformance, it does so at its peril.

Credit:  Jonathan R. Tillem