7 Elements To Include in Your Master Use License Agreement

Certain brands have become so popular that we can trust the quality of the product simply by the trademark it has on it. The power of intellectual property should not be downplayed. In fact, it needs to be protected, and using master use license agreements is one way to do that.

How Do Licensing Agreements Work?

Interested parties should know the master use license definition before creating this type of agreement. A master use license is a contract between two parties whereby a property owner allows another party use of a brand, patent, or trademark.

The agreement facilitates the relationship between the licensor (the property owner) and the licensee (the permitted party). It covers the details for the kind of licensing agreement, the terms of use, and remuneration.

Contract types differ according to what is being licensed. Licensing agreements also prevent disagreements concerning sales, quality grievances, and royalties.

What Are 7 Elements You Should Include in Your Master Use License Agreement?

There are certain factors to consider when researching how to get a master use license.

Types of license agreement

Given that license agreements can cover many different things, it’s better to identify what license you require.

Trademark license

Trademarks identify certain brand names, logos, or slogans. Trademark licensing agreements facilitate trademark owners in allowing others to use their intellectual property (IP). Trademark owners may allow the use of their trademarks for money-making ventures involving clothes, cell phone cases, or food.

Copyright licenses

Copyright licenses are used for forms of art. They can be visual art, such as paintings or movies. There is also a master use license for music. Copyrights are also used for unique characters like Mickey Mouse.

Copyright end-user license agreements are used a lot for consumer products, similar to trademark licenses. They are also used in distributorships, such as recordings or movies.

Trade secret licensing

Trade secrets are distinctive because they are not registered through the government. Patents, trademarks, and copyrights hold the most value after being registered with the federal government, and trade secrets are usually safeguarded just by secrecy. Two of the most popular trade secrets are owned by Coca-Cola and KFC.

If you need a master use license, remember that trade secret licensing agreements often go hand in hand with non-disclosure agreements (NDAs). The reason for an NDA is for the parties to agree that the person receiving the stipulated confidential data cannot divulge it to anyone without penalty.

Payment or remuneration

The payment clause is crucial in any agreement, and the license agreement is no different. In choosing whether to opt for monthly, quarterly, or once-a-year payments, many payment methods depend on the agreement. Payment is for licensing fees or royalties, which will also affect taxes. The licensee generally makes an upfront payment of the royalty fee in a licensing agreement.

Territory

This is an essential condition to include in the license agreement. The document must mention what territories are allowed to use the brands, trademarks, or creations.

For instance, a trademark owner with limited jurisdiction cannot extend his or her brand and sell goods or services under the trademark, let’s say, in California. If the agreement does not restrict the use of the trademark and the licensor uses it in California, the owner will be at risk of a lawsuit for trademark infringement.

Exclusivity

In this clause, ensure that the licensee is the only one with the rights to supply his or her goods/services under the brands or trademarks. If, however, these rights are not to be restricted to one licensee, be sure to include that information. Failing to regulate this provision in the agreement can increase the probability of a dispute.

An exclusivity provision is written in these agreements partly to safeguard the market. For instance, placing another hotel next to an existing hotel would be counterintuitive, as one hotel might pull business from the other. With exclusivity provisions, territory limitations can protect the market territories in the vicinity of licensee businesses.

License term

The duration of the relationship is another important consideration of a licensing agreement. It is typically calculated in years of a baseline or effective date, and a two- to three-year contract is standard.

While this might seem like a standard term that should be in any agreement, the terms of the license and contract should not be confused. As such, it would be better to place the license and contract terms into separate clauses of the agreement to ensure that all points are clear.

Quality control

When looking at licensing of trademarks, it is essential to specify in the agreement that the licensee will exercise discretionary supervision and control over the use of the trademark and the quality of the products for which the trademark is used.

Failing to do this could result in abandoning the trademark by granting what is called a naked license. As was seen in the case of Eva’s Bridal Ltd. v. Halanick Enterprises, Inc, it was held that trademark law necessitates that the “decision-making authority over quality remains with the owner of the mark.”

Sub-licensing

A licensor must decide whether he wants to grant the right to the licensee to sub-license the innovation to additional parties. Allowing a sublicense can bring more income because more people or organizations can use the brand, trademark, software, or innovation. However, this may also dilute exclusivity, making it more difficult to control some products.

If an agreement allows for an affiliate or sub-distributor, it should be mentioned in the contract. A subsidiary relationship would permit the licensee to enable a third party to use or distribute the property. To be protected, licensors should ensure that expectations of this type are stipulated in the brand licensing agreement before signing.

What Should You Pay Attention To While Including These Elements?

You should be thorough when drafting a licensing agreement to protect your business. The licensee and licensor must agree. Consider enlisting a lawyer for help, or draft a master use license agreement from a template online in just a few clicks.

Add specific provisions

Standard mastering license agreements should have the following structure:

This is important because all agreements differ, and the provisions must consider those differences.

Make provisions that work logically with each other

The provisions need to flow with each other.

It is also important to be consistent throughout the agreement and avoid contradictory provisions.

Reserve the right to revise the royalty amount

As I usually say,

You should be able to change the rate according to the competitor’s prices, the economy etc.

Control the use of your brands, trademarks, and innovations

To safeguard your brands, trademarks, and innovations, be sure to maintain control of their use and the quality of the products for which your brands, trademarks, or innovations are used. If a licensee neglects quality, it will affect the brand owner. Therefore, violating quality conditions or ignoring the licensor’s quality requirements may be grounds for terminating the agreement.

What Are the Steps to Writing a Master Use License Agreement

Getting master use license agreements ready for signing means following a few specific steps when drafting the document.

Step 1

A good starting point is the parties. Before entering a licensing agreement, find out more about the other party before affiliating with them. Investigate how they operate. You will want to ensure that you are contracting with the right people.

Step 2

Clearly describe the licensing subject, stating what the other party will be allowed to use and other rules and restrictions.

Step 3

Ensure that all specific provisions for the license agreement, including territorial agreements, quality control, exclusivity, etc., are included in the contract. Also be sure to include all the basic provisions for duration, dispute resolution, remuneration, confidentiality, etc.

Step 4

Proofread the agreement to make sure that everything necessary is included and that each party’s rights are protected. Refer to a professional master use license agreement template that you can easily fill out online and download a PDF copy to share with the other party.

Key Takeaways

These agreements protect intellectual property and govern its usage. It is important to include certain master use license elements to ensure that a contract is precise, there is no room for disputes, and the rights of both parties are protected. When creating the agreement, consult reliable sources and follow the necessary steps to ensure that your contract is clear and follow the master use license legal rules.

Article by Karyna Pukaniuk

Karyna Pukaniuk, Head of Legal at Lawrina. Experienced Tax and Corporate Lawyer, team leader, and legaltech pro. Led and backed the smooth operation of the legal team and accompanied several different projects simultaneously. Worked closely with department's leads, and shareholders and advised them through all legal, regulatory, and risk management matters. Supervised multi-million dollar M&A deals, and actively participated in the company's product development.

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