Womble Carlyle's presence in Silicon Valley was strengthened late last year with the addition of Jay Landrum – a senior corporate attorney with almost 25 years of experience. Jay has founded two companies, served as GC for a NYSE-traded corporation, and for many years has represented a wide range of SV businesses on transactions and corporate matters.

It's been great to have Jay on board and it's been particularly helpful to be able to tap his experierence on contracts and licensing matters which are so critical to our clients' continuing growth and financial health.

A licensing agreement is intended to provide financial opportunities for both the licensor and licensee, but as we all know, things don't always work out that way. I asked Jay if he could outline some of the common pitfalls in licensing and how he helps his clients steer a clear path through potential difficulties with their licensing matters.

"There are some basic issues that if unaddressed, will almost inevitably lead to problems down the line," says Jay. "It's not rocket science – well-defined licenses make for better relationships between licensors and licensees."

Jay identifies five licensing pitfalls and what you can do as either licensor or licensee to protect your company's interests:

  1. The licensor's failure to set performance expectations. Solution: As licensor, set initial marketing dates, set minimum sales levels, and set minimum royalty requirements.
  2. The licensee's failure to negotiate a right to a contract extension based on performance. Solution: Define what performance will allow you to extend the initial term of the contract.
  3. The licensor's failure to collect an advance on royalties. Solution: Requiring an upfront advance, however small, may be the best way to test the licensee's confidence in its sales predictions.
  4. The licensee's failure to secure exclusivity, however limited. Solution: When you act as a licensee, negotiate exclusivity at the outset, whether by product category, geography, distribution channel, or specific accounts.
  5. The licensor's failure to secure auditing rights. Solution: Ask for auditing rights upfront – by having them, you may never need to use them.

Thanks to Jay for this crash course on licensing. That's it for February. Back at you next month for the madness that is March.

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