Anatomy of a License Deal

Chapters

1. 4.1 The key deal terms: property, territory, term, channels, exclusivity

   Every license deal answers five basic questions: what you can use, where, for how long, where you can sell it, and whether anyone else can do the same. These are the property, territory, term, channels, and exclusivity. Get them clear early and the rest of the negotiation becomes much easier.

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2. 4.2 Money terms: royalty rates, minimum guarantees (MG), and advances

   Most licenses pay the rights holder in three connected ways: a royalty on each sale, a minimum guarantee (MG) the licensee commits to paying no matter what, and an advance paid up front against that guarantee. Understanding how these fit together is the key to knowing what a deal really costs you.

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3. 4.3 Royalty bases: wholesale vs. retail vs. net sales

   A royalty rate means nothing on its own. You also need to know what number it is applied to: the royalty base. The same percentage can produce very different payments depending on whether it is calculated on wholesale price, retail price, or net sales.

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4. 4.4 Sell-off periods, renewals, and termination

   Every license ends eventually. How it ends matters: whether you can sell leftover stock, whether you can renew, and what happens if either side breaks the contract. These clauses protect you from being stuck with inventory you cannot legally sell.

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5. 4.5 Sublicensing

   Sublicensing means passing some of your licensed rights to another company. Most licenses forbid it unless the licensor gives written permission, because rights holders want to know and approve every company using their property.

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6. 4.6 Sample term sheet walkthrough

   A term sheet is a short summary of the main business points of a license, agreed before lawyers write the full contract. Reading one line by line is the fastest way to see how all the terms in this module fit together. Below is an illustrative term sheet for a fictional deal.

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