When a company is growing, they begin selling more products and often start exploring options like distribution agreements and licensing agreements.  When looking into those agreements, it important that the terms and scope of the agreement are understood by both parties and written down.

Terms of the agreement can include scope restrictions such as whether or not the relationship will be exclusive or not.  That can be tightly related to territorial restrictions.  That is, the company selling your product may be limited to a specific territory such as the state of Wisconsin or only on brick and mortar stores (a/k/a not online).  The parties need to understand where the new partner can sell the products and whether or not others will be selling your products at the same time in the same place.

Another term that can seem obvious is the length of the agreement, but it is often forgotten.  Will it be for a set, certain number of years; until it is terminated; or perpetual?  Can it be renewed?  How and why can it be terminated?  What happens then?

And what about the important question of how will the company be paid?  Royalties is a percentage of sales, but what percentage and of what constitutes sales?  Net or gross?  Be sure to talk about what happens with returns or reimbursements.  And, of course, how do these sales get reported and double checked?

Those above are often pretty easy to remember, but there are lots more.  One thing to do is to think about what you already do in your business and then decide what obligations they need to share and what you need to keep tabs on.  For example, it is very important for trademark licensors to monitor the quality of the products being produced and sold.

I bet you also have insurance.  Do you want to require them to have insurance, also?  Maybe even include you as an additional insured.  You also have to make warranties to customers.  Do you want them to make warranties to you?  How about to your customers?  Do you want to be on the hook for those promises that they make to customers?

Speaking of customers, what about customer support?  Who is in charge of that?  What is “customer support”?  It is just online help, telephone, on site?

My goodness, that’s a lot more questions than answers.  And those are just the general ones.  Each industry and deal has its own intricacies.  Trust me:  beer and children’s toys are not licensed identically.  So what’s the takeaway?  Be sure to take the time to think through the big and little things, and then get it in writing.  That way in five year’s time, you remember what you agreed that each party would do.