Licensing Contract Terminology

Monies paid to a licensor by a licensee for the right to use the licensed property computed by multiplying the royalty rate by the net (wholesale) sales.

The percentage of sales, typically net (wholesale) sales paid to the licensor by the licensee for the right to use the licensed product or articles. 

The unit price, determined at the licensee’s sole discretion, that a retailer pays to obtain the licensed products or articles.

Royalties are often computed using the wholesale price.

The unit price, determined at the retailer’s sole discretion, that a consumer pays to obtain the licensed products or articles.

Sales figure computed by multiplying all units sold of licensed products or articles by the wholesale sales price.

No deductions, such as returns or freight, are subtracted from gross sales.

Sales figure computed by taking gross (wholesale) sales (total sales of licensed products or articles multiplied by the wholesale price) and subtracting allowed deductions, such as returns or freight.

Licensed products or articles that are sent back to the Licensee from the retailer for any reason.

Typically, there is a limit to the number of returns that a licensor will allow to be subtracted from gross (wholesale) sales to compute net (wholesale) sales

The payment made by the licensee to the licensor for royalties due.

The minimum royalty payment, or prepaid royalties that a licensee is contractually obligated to pay a licensor.

Typically the guarantee is computed by taking a percentage of the licensee’s estimated royalties for the entire term of the license agreement.

Guarantees may be paid quarterly, semi-annually, or annually and are typically nonrefundable and credited against future earned royalties.

The initial guarantee paid by a licensee to a licensor, due upon execution of a license agreement.

Advances are typically nonrefundable and credited against future earned royalties.

The first contracted period of time for which a licensor grants the licensee the use of its licensed property.

The additional term of a license agreement, which begins immediately following the end of the previous license agreement.

Renewals can be automatically triggered at the end of the initial term if established financial or sales targets are met, or as otherwise contemplated in the agreement.

The time period after the license agreement expires during which a licensee is permitted to sell the remaining stock of licensed products or articles.

Royalties generated from sales during the sell-off period cannot be typically credited against the required guarantee.

A license agreement grant that permits only one licensee the right to develop the licensed property for a particular product category, distribution channel, and/or territory.

When a licensor agrees not to grant another license of the same rights within the same scope covered by the exclusive license.

The location where the retailer takes ownership of licensed products or articles and from where shipping costs are calculated. 

For example, 'F.O.B. Hong Kong' means that a licensee is selling licensed products to a retailer who takes possession in Hong Kong, and thus it is the responsibility of the retailer to manage the logistics and costs to bring the goods to the U.S. 

Retailers pay lower wholesale prices for goods that are F.O.B. outside the U.S., and consequently, royalties to the licensor are lower. 

Licensors typically charge higher royalty rates for licensed products that are F.O.B. outside the U.S.