Product licensing agreements, whether the product is software, hardware, or simple consumer goods, center around two main areas of law: contract law and trademark law. The contractual part of the agreement is self-explanatory while trademarks are an added necessity in these modern times (where often up to 90% of the value of a product consists of the name or logo on the packaging).
A distributor’s license – a general product license agreement – is a complex agreement that the designer must take extra care to describe the rights and responsibilities of each party. Otherwise, expensive litigation is a definite end result.
Here’s what a typical distributor agreement should have:
1) The parties (obviously).
2) Service: This is a detailed description of the responsibilities of each party to 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 software in New York. Perhaps party B will also be responsible for updating and providing customer guarantees for the software? It’s ultimately up to the parties…
3) Payment: Who pays whom? At what intervals? What are the penalties for late payments? Who is responsible for handling end clients, billing 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: in the event of an unforeseen contingency, costly litigation becomes inevitable (e.g., the distributor country issues new taxes on the types of products the distributor sells and the agreement fails to determine which party is responsible). bear the burden of this new tax). Best Advice: Don’t rely on Googled forms, especially for big value deals; hire a lawyer who knows your industry and, therefore, knows what can go wrong.
5) Proprietary Rights: This is the legal part of the trademark. The agreement must clearly state which intellectual property belongs to which party. After years of working together and using each other’s logos on your products, the line between who owns what can become blurred…
6) Limitation of Liability: This is usually standard language in which each party agrees not to hold the other party liable for standard failures under the agreement (you can’t deny non-standard failures, like burning a warehouse).
7) Term (time): This is self-explanatory.
8) Termination: This is also very important and requires good legal counsel. How a relationship ends and what ongoing rights and responsibilities the parties have are as important and prone to litigation as how the agreement was initiated.
9) Arbitration and Choice of Law: This is optional but highly recommended. A strong arbitration clause will ensure that any disagreement will be brought to arbitration. While arbitration can be expensive, it doesn’t come close to the years of involvement in motion practice, discovery and appeals you see in traditional litigation.
In short, the main purpose of a well-designed agreement is to provide as many possibilities as possible to avoid future disputes and of course to avoid costly litigation over those disputes.
