business owner signing licensing agreement
By Davy Karkason
Founding Attorney

If you own or control intellectual property rights to a product or device, then you are probably looking for ways to increase the revenue your company receives from sales. You can do this by expanding your market to a foreign country by entering into an international licensing agreement with a business overseas. This will allow you to get paid for your intellectual property rights through a licensing agreement with a foreign company. However, you should keep in mind that there are certain benefits and risks to any foreign licensing agreement. In the following, we will explore the pros and cons of international licensing agreements that American business owners like you should be aware of before entering into one.

Benefits of Foreign Licensing Agreements

The main reason American companies like yours consider entering into licensing agreements is to increase revenues by expanding their markets. You may have fully exploited your opportunities here in America, and are looking for ways to make more money. One way to do this is with foreign licensing agreements. This can set up a lucrative stream of passive income for you if they are done correctly. They will also give you new markets for your product offshore.

Another advantage of using an international licensing agreement is to reduce your own risks and expenses. Let’s face it, setting up a business in another country can have many risks. You may have little or no knowledge of the foreign marketplace, as well as local laws and rules. 

Using a license agreement allows you to have your foreign licensee take on this burden since they are probably better suited to do business in their home country than you are. In addition, you don’t have to incur all the costs and expenses associated with setting up a business in another country. Instead, you will gain income from the foreign entity’s distribution network for a very low entry fee.

Disadvantages of International Licensing Agreements

Not everything is perfect when you enter into a licensing agreement with a foreign entity. For one thing, you are now relying on the good faith and hard work of a business in another country. Unfortunately, the foreign company may not be able to perform as well as you had hoped. 

Sometimes, you enter into an agreement with a foreign licensee who turns out to be disreputable. This can harm you in a number of different ways. 

First, they may try to steal your intellectual property. While there are international agreements on intellectual property like the Madrid Protocols, there is no guarantee that the foreign company will abide by them. They could either sell your intellectual property to companies in other markets or attempt to sell their knockoff products here in the United States. In addition, if the foreign entity doesn’t manufacture your product correctly, your firm’s reputation could be harmed.

Even if everything goes right, you can still have problems receiving royalty payments. This can occur if the sums being paid are large enough to trigger a review by the Treasury Department. Large payments made by international wire are subject to review, which can delay the receipt of payment.

There are also issues raised by licensing to a foreign entity. For example, the amount of payments could be negatively impacted by fluctuations in foreign currency exchange rates. A deal that looked great when you entered into it could suddenly be economically disadvantageous because the foreign currency plummeted. This can also happen if the foreign country’s economy goes into a recession, reducing the sales of the product.

The final problem is one of international litigation. If the foreign entity breaches the licensing contract in any way, you may have to sue your licensee in a foreign court. Even if you have the choice of law and jurisdiction clauses in your licensing agreement that specify America, you may still have to go to a foreign country to enforce the judgment from the US court. This can be a very costly and frustrating experience.

Call Us If You Are Considering Entering into an International Licensing Agreement

As you can see, while international licensing agreements can be a great way to increase your company’s revenue with very little capital investment, they can also have some major risks for your business. Call our firm today so our experienced attorneys can help you navigate all aspects of licensing your company’s international property to foreign companies.

About the Author
As a lawyer and the founder of Transnational Matters, Davy Aaron Karkason represents numerous international companies and a wide variety of industries in Florida, the U.S., and abroad. He is dedicated to fighting against unjust expropriation and unfair treatment of any individual or entity involved in an international matter. Mr. Karason received his B.A. in Political Science & International Relations with a Minor in Criminal Justice from Nova Southeastern University. If you have any questions about this article you can contact Davy Karkason through our contact page.