Increase Your Sales Through Licensing 

June, 2005 - Diane Bellavance

What is Licensing?

Globalization and the opening of international markets generate an increase in trade on a world-wide basis and greater competition between businesses. It has become increasingly difficult for companies to follow the traditional process of developing, manufacturing and distributing products themselves.

Licensing is a simple and different way of selling one’s products. It is a right granted to another party to manufacture, improve or sell a product or a technology within a given territory. Licensing is sometimes accompanied by a strategic alliance for the development and improvement of the product or technology under license.

Licensing is a marketing strategy with numerous benefits to businesses such as a reduction in distribution costs, faster merchandising of the product or technology in a larger market, improvement of a product by the owner and its licensees, opening of additional markets which would otherwise be difficult to penetrate and a way of keeping up with market developments through their licensees.

Important points to remember

The following are examples of significant points to think about prior to concluding a licensing agreement:

• The notion of exclusivity
• Sub-licenses
• The territory
• Remuneration through royalties (withholding tax)
• Sales quotas
• Ownership of improvements and developments of products or technology
• Representation and warranties of the licensee
• Use of patents, copyrights or trademarks
• Technical or product support
• Provisions as to confidentiality, non-competition and non-solicitation
• Protection and ownership of intellectual property rights, as well as clauses pertaining to their infringement
• Termination clauses
• Applicable law and possibly arbitration
• Exact definition of the product or technology which is the subject of the license, as well as the patents, copyrights and trademarks associated with the product or technology

Choice of Licensee

The choice of licensees is the material factor in the success of a licensing program; finding the right partner is one of the main elements of success. The licensee must have the business skills, the means and resources necessary to use the technology or the product efficiently and to carry out successful merchandising. The company must look for a partner with reliable and adequate manufacturing methods. The licensee must be well established within the given territory. The size of the company, the market covered, the facilities, the number of employees, the products distributed by the licensee and his profitability and reputation are all factors which should be examined during the selection process. A legal due diligence review is highly recommended.

Protection of Intellectual Property

It is imperative that the company, as part of a licensing program, ensure that all intellectual property rights covered in the licensing agreement are well protected. Protection under the intellectual property laws gives the company the exclusive use of its technology, its trademarks and its innovations.

International Acts and Foreign Laws

Be sure to verify the acts, foreign laws and formalities which can affect you, such as deductions on royalty payments (withholding tax).

Confidentiality Agreement

A simple, clear and precise confidentiality agreement is essential before beginning talks with a potential licensee. Do not be afraid to require the other party’s signature. A letter of intent is an effective preliminary agreement that unites the parties and allows for a more complete license agreement.

We are able to help you with all your legal needs in this field. Please do not hesitate to contact Diane Bellavance at 514 877-2907 or at [email protected]
We also invite you to visit our web site at


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