Brand Licensing – pre-negotiation tips and considerations
Before entering into a potential brand licensing agreement as either a licensor or licensee, it is crucial to have a clear idea of your positioning and future aims for any licensing negotiations. This will help you to achieve a successful licence agreement for you and your business.
Some points to consider in the brand licence pre-negotiation phase:
- What is your licensing aim
While it might seem like an obvious question, having a clear aim in mind is key to developing a successful licensing strategy and also for any negotiations to come. For example, as a licensor or licensee, maybe your aim is to: increase business turnover and your objective is to create an additional revenue stream; raise brand awareness and visibility in new markets and with new consumers by working with another business which has the facilities and expertise for market entry; enhance your brand reputation and image by entering a co-branding business venture.
Once you know what you are looking to achieve through a licensing deal, you can then identify the best way to position your business for any negotiations and eventual agreement.
- What does your business bring to the table
In terms of negotiating strategy, it is important to know and understand exactly what your business is bringing to any licensing deal, so that you have a clear ‘hand of cards’ once at the negotiating table. Identifying your own business’s position and its strengths and weaknesses, will help you to determine the stance you can take and the cards you can play at the right time to obtain the best deal for your business. It will also enable you to see what the other party could be looking for in any agreement.
- Understanding your potential target
Carrying out some research on your target licensee or licensor, will help you to understand their business and its strengths and weaknesses. Also, are they likely to be a reliable partner? The more you know about your target, what they have to offer and what they could be looking for, the better equipped and prepared you will be at the negotiating table.
- The best agreements are often win-win
Having a positive mindset and wanting to make your partnership work with a licensor or licensee, can only be beneficial for both parties. Sometimes squeezing the other party and only considering your own business advantage, can mean that the relationship doesn’t work as well as it could (is sub-optimal) and in the worst case scenario could fall apart, or disintegrate over time.
If the licensor and licensee feel that they are both getting what they want and need out of an agreement (a win-win situation), they are more likely to work towards and be committed to making the licensing deal successful. This may also lead to further work together and/or open up new opportunities for both parties.
- Outline terms
Drafting an outline of terms sets out the boundaries of an agreement, will help you to see the bigger picture in terms of the type of contract you would like to negotiate and have in place. You should consider the optimal and minimal requirements for your business from the deal. It will also be important to consider terms such as: which trade marks/designs are to be included in the agreement, the type of licence (exclusive or non-exclusive), the term (fixed or perpetual), payment terms (fixed fees, royalties), territories covered, quality control, brand use guidelines, termination and any warranties or indemnities.
Once you have a term sheet drafted, this can be used as a starting point for your negotiations when they take place.
- Strategy for approach and negotiation
The insight you have gained from your pre-negotiation preparation and research, will help you to determine how best to go about contacting the potential target business and how you will undertake negotiations.
If it appears that you will be dealing with a small target business, then you could take the time to meet with them face-to-face and make communication as easy and least costly as possible. Being open and transparent will help to move the negotiating process on, but you may need to be patient in order to negotiate certain aspects of the agreement and reach the signing stage.
If you are dealing with a larger corporation, you may want to be cautious about being pressured into signing an agreement too quickly, and to take the time to think about each aspect of the negotiation. Also, they may be prepared to help absorb costs during the early stages, for example, by coming to your office or agreeing to upfront payments being made while work is being undertaken by your business (and negotiations are ongoing).
Brand Licensing pre-negotiation tips summary
- Pre-negotiation planning and background research will best position your business for negotiations and increase the likelihood of obtaining a successful licensing deal.
- Taking the time to understand both your own business position and your target’s background and position, will help you to identify what you want out of an agreement, what your target could want and will lay the foundation for negotiating terms.
- Having a positive mindset and wanting to work well with a potential licensor/licensee, can only benefit both parties and help the partnership to be successful.
- Drafting an outline of your terms will enable you to see the bigger picture when negotiating an agreement.
- Considering your approach and negotiating strategy before entering discussions, will help make you aware of any opportunities and pitfalls in the negotiating process.