Manufacturing Licence Agreement

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Introduction

The person who invents a new product does not necessarily have the financial resources required to manufacture and market it on a large scale. In fact, it is common to see the inventor expend its entire financial resources developing the prototype. The following document establishes the legal and financial framework of the transaction by which an inventor fully entrust to a third party the responsibility to manufacture and market the invention in a specific territory.

If the person who invents a new product has the financial means to market the invention itself, it may, if it does not have the required human and material resources in-house, retain the services of a sub-contractor (see document G03.200 of the Business Precedents) or of a distributor (see document K02.200 of the Business Precedent) for this purpose. This allows the inventor of the product to retain a coordinating role enabling it to maintain some control over all manufacturing and marketing of the invention.

Description

The Manufacturing License Agreement is the legal instrument by which a person called the OWNER, having developed a new product for the manufacture of which it has unique expertise or a patent, contracts with another person, known as the LICENSEE, to allow the latter to manufacture and market this product in a given territory, upon payment of a contribution (royalty).

Use

Designing a new product requires a very specific expertise, as does manufacturing and marketing such product. These areas of expertise and the resources required to support them are not usually found within a single person or within the same business, which is why contacts must be made with other persons having the required resources to ensure the commercial success of this new product. This is why the Manufacturing License Agreement comes into play.

The benefit of such an agreement is that it allows each party to contribute to the project without requiring the creation of a partnership. With this type of agreement, the person who develops a new product can access the selected market at a lower cost by collaborating with a manufacturing and distribution firm. Conversely, the person who owns the production and distribution facilities can also benefit by expanding, at a lower cost, its product range.

This type of collaboration can vary greatly because there are many variables on which the parties must agree. The document that we offer includes, without being exhaustive, a large inventory of variables to which each party must agree to during negotiations, before they can enter into an agreement. This negotiation is generally very sensitive, because it involves the exchange of technical information that the parties are often reluctant to disclose, which is why it is often necessary to use mutual Confidentiality Undertakings (see document H01.200 of the Business Precedents), to start the dialogue leading to the execution of such a manufacturing license agreement.

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