China Licensing AgreementsWhen one of our China lawyers is contacted to “draft a contract” we usually must first determine whether it is time to draft the contract or not. For example, if a client wants us to draft an OEM Agreement to have its widgets manufactured by Chinese Company A, there is no point in our even starting on such an agreement if the parties are not even close to agreeing on the price for those widgets.

We often find ourselves giving clients and even potential clients a list of the items on which they should reach agreement before they pay us to draft their agreement. There have been plenty of times where we as lawyers have been able to bridge the gap between our client and a Chinese company to make a deal happen, but there are some gaps we simply cannot bridge. If a Chinese manufacturer insists on charting $5 per widget and our client will pay no more than $3 per widget, there will be no deal and there is no point in our drafting an agreement as though there will be one.

But on something more complicated like a Joint Venture deal, where neither side is usually familiar with common terms, we often start drafting the joint venture agreement before the parties have reached a clear agreement, in part to help the parties determine what remains for them to agree upon for an agreement to get signed.

Licensing agreements are usually more complicated than manufacturing agreements but less complicated than joint venture agreements and I was recently cc’ed on an email from one of our China lawyers to a potential client contemplating licensing its technology and brand name to a company in China. This email was in response to the potential client having requested we help them with the “things we should be doing to prepare for our upcoming meeting with our potential licensee.” The email list was as follows:

  1. Make sure any IP (trademarks, patents, copyrights) that your licensee may use is registered in China. Now. You do not want a situation where your potential China licensee files for “your” trademarks so as to gain negotiating leverage against you. If such IP is not already registered, get it registered. We can help you with this.
  2. Make sure your potential licensee is legitimate. Is it financially capable of paying your licensing fees? Does it have experience with your sort of product? Is it the sort of company that will preserve, enhance or destroy your reputation? We can help you with this.
  3. Are you going to allow this potential licensee to sub-license, and if so, to whom?
  4. What sort of controls are you going to want over this licensee’s use of your technology and your name?
  5. Who is going to pay what in terms of marketing your technology and your name in China? I’m guessing it is going to be the Chinese company, but you should get clear on this.
  6. Who is going to be responsible for paying Chinese taxes on the royalties? For a whole host of reasons, you are going to want this burden to fall on your China licensee.
  7. How long will the duration of your licensing agreement be and on what grounds may you unilaterally terminate it early? Make sure that you include grounds that involve your need to protect your brand and your reputation.
  8. Make sure that your potential licensee agrees to comply with all Chinese laws regarding the need to register your licensing agreement. This should not be a problem, but occasionally it is.
  9. Do not sign an MOU or an LOI unless you run it by us first. I urge you read this post on China MOUs and LOIs 

Once they have reached tentative oral agreement on the above, we can start drafting the licensing agreement.

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Dan Harris

I am a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

I mostly represent companies doing business in emerging market countries. It has taken me many years to build my network and it takes constant communication and travel to maintain it. My work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

I was named as one of only three Washington State Amazing Lawyers in International Law, I am AV rated by Martindale-Hubbell Law Directory (its highest rating), I am rated 10.0 by AVVO.com (its highest rating), and I am a SuperLawyer.

I am a frequent writer and public speaker on doing business in Asia and I constantly travel between the United States and Asia. I most commonly speak on China law issues and I am the lead writer of the award winning China Law Blog (www.chinalawblog.com). Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed me regarding various aspects of my international law practice.

I am licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at my firm, I focus on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.

  • socialbrandwatch

    Thanks for sharing. Nice Article.

  • askinfo.in

    Very helpful list. Thanks.