A sound licensing or distribution agreement establishes who may use an asset, how products will be sold, and how revenue is shared, preventing misunderstandings and costly litigation. Proper contract design preserves brand value, enables controlled market expansion, and creates measurable standards for performance, reporting, and quality control that protect long-term business interests.
Detailed terms around breaches, cure periods, and remedies make resolution more straightforward when problems occur. By defining measurable performance standards and escalation paths, parties can address issues collaboratively before they escalate, saving time and expense while preserving commercial relationships and access to dispute resolution that suits the transaction.
Clients engage Hatcher Legal for clear, commercially focused contract drafting and negotiation that balances protection with deal feasibility. We prioritize provisions that enable clients to pursue growth while managing legal and regulatory risk, translating complex legal concepts into practical contractual outcomes that support business objectives.
If market conditions or technologies evolve, we negotiate amendments to preserve value and clarity. When disputes arise, we pursue efficient resolution methods such as mediation or arbitration where appropriate, seeking outcomes that minimize disruption and preserve business relationships whenever feasible.
A licensing agreement grants specified rights to use intellectual property, such as trademarks, patents, or software, while a distribution agreement governs how products are sold, marketed, and delivered through particular channels. Licensing focuses on usage rights and royalty arrangements, whereas distribution focuses on sales, logistics, and territory restrictions. Choosing the right structure depends on commercial objectives: if control over branding and sales channels is primary, a distribution agreement is often appropriate; if the goal is to monetize IP through third parties, a licensing model may be preferable. Each approach requires tailored terms for quality control, payment, and enforcement.
Royalties and payments are typically calculated as a percentage of net sales, fixed fees, or milestone payments tied to performance targets. Agreements should define the royalty base, allowable deductions, timing of payments, currency, and remedies for late payment to avoid disputes and ensure predictable cash flow. Enforcement relies on clear reporting obligations and audit rights that permit the licensor to verify calculations. Including interest on late payments, detailed recordkeeping requirements, and dispute resolution mechanisms strengthens enforceability and helps resolve discrepancies efficiently without prolonged litigation.
To protect brand quality, include specific quality standards, labeling guidelines, and inspection rights in the distribution agreement. Require the distributor to follow approved marketing materials and to meet defined technical or service benchmarks, and provide for periodic audits and corrective action plans when standards are not met. Also include termination rights for persistent quality failures and obligations for the distributor to cease using trademarks after termination. These measures help preserve customer perceptions of the brand and prevent dilution or reputational harm across different markets and sales channels.
Granting exclusive rights can incentivize distributors to invest in a territory by offering market protection, but exclusivity carries risks such as reduced pricing flexibility and dependency on a single partner. Exclusive grants should be conditioned on performance obligations and have defined termination triggers for material nonperformance. To mitigate risk, include minimum purchase or sales targets, regular performance reviews, and fallback provisions to permit nonexclusive distribution if the exclusive distributor fails to meet commitments. Define geographic or field limitations clearly to prevent unintended global exclusivity.
Termination provisions should set out clear causes for termination, required notice periods, and cure opportunities to correct breaches. Transition clauses outline responsibilities after termination such as remaining inventory, customer notifications, and assistance to transfer accounts or manufacturing, ensuring an orderly handoff and minimal service disruption. Include post-termination covenants for IP use, return or destruction of confidential materials, and settlement of outstanding payments. Well-crafted transition language reduces commercial disruption and protects both parties’ interests while preserving access to remedies for breaches that led to termination.
Licensors typically seek audit rights to verify sales reports and royalty calculations, combined with clear reporting schedules and formats. Audits should be limited in frequency and scope to balance verification needs with operational burden, and should specify who bears audit costs in cases of material underreporting. Reporting obligations must define accounting methods, deductions from gross revenue, and timing for payment reconciliations. Including penalties or interest for substantial underreporting incentivizes accurate reporting and protects the licensor’s revenue streams without imposing excessive monitoring on the licensee.
Antitrust concerns arise when agreements restrict competition, such as through pricing controls or market allocation. Parties should avoid clauses that unreasonably limit competitors’ actions or create unlawful restraints on trade. Reviewing terms for compliance with competition laws reduces the risk of enforcement actions or private antitrust claims. Export controls and trade sanctions can restrict the transfer of certain technologies and goods across borders. Contracts should include representations about compliance, procedures for handling restricted items, and termination rights if trade restrictions make continued performance illegal or commercially impracticable.
Limiting liability helps control risk exposure but should be negotiated carefully to remain commercially acceptable. Typical tools include caps on damages, carve-outs for willful misconduct or IP infringement, and disclaimers for consequential damages. Tailor limits to the nature of the transaction and the relative bargaining positions of the parties. To avoid discouraging counterparties, balance liability caps with reasonable indemnities and insurance requirements, and consider escalating remedies or liquidated damages for predictable losses. Clear, proportional allocation of risk increases the likelihood of reaching agreement while protecting critical interests.
Indemnities are appropriate where one party’s actions could expose the other to third-party claims, such as IP infringement or product liability. Require the indemnifying party to control the defense of covered claims and to provide prompt notice of claims, while allowing the indemnitee to participate in the defense to protect its reputation and interests. Insurance requirements complement indemnities by ensuring financial resources to satisfy claims. Specify types and minimum limits of coverage, name parties as additional insureds where appropriate, and require evidence of insurance and notice obligations for cancellation or material changes in coverage.
Before entering a cross-border distribution agreement, assess import/export regulations, customs duties, tax implications, and local product compliance requirements. Confirm that intellectual property registrations and enforcement mechanisms are in place in relevant jurisdictions to reduce infringement risk and secure local remedies if needed. Also consider logistics, currency risk, local dispute resolution norms, and the practicalities of enforcement. Include clear choice-of-law, venue, and enforcement provisions, and require counterparties to maintain compliance programs that align with applicable anti-bribery and trade control laws.
