Foreign Licensing Agreement Meaning

Payments made by the licensee to the licensor are generally made in the form of guaranteed minimum payments and royalties on sales. Royalties are typically between 6 and 10 percent, depending on the licensee`s property, experience, and sophistication. Not all licensors need guarantees, although some experts recommend that licensors receive as much compensation as possible in advance. In some cases, licensors use warranties as the basis for renewing a license agreement. Where the customer satisfies the minimum turnover figures, the contract shall be renewed; Otherwise, the licensor will have the opportunity to terminate the relationship. In May 2018, Nestlé and Starbucks entered into a $7.15 billion coffee license agreement. Nestlé (the licensee) has agreed to pay US$7.15 billion in cash to Starbucks (the licensor) for exclusive rights to sell Starbucks products (single serve coffee, tea, bapped beans, etc.) worldwide through Nestlé`s global distribution network. In addition, Starbucks receives royalties for prepackaged coffees and teas sold by Nestlé. Money issues can be complex due to currency conversion rates and the different types of taxes that may apply to royalties or sales.

The agreement should describe how you are paid and ask the licensee to pay you in US dollars. You may want to require the licensee to give you access to their books so that you can check them regularly. A small business that wants to expand into foreign markets often faces financial and cultural barriers that can hinder the success of expansion. Foreign licensing agreements can help a small company expand its product lines to other countries if it is not able to establish and manage production sites established abroad….