What Is an Inbound Agreement?
Many companies choose to collaborate with other brands through the licensing of intellectual property (IP) to achieve their business goals. This allows the IP owner to profit from their IP while outsourcing the marketing to another business. These agreements, when referred to from the licensee’s perspective, are known as inbound agreements.
Inbound agreements can be very complicated contracts due to the complexities surrounding licensing and intellectual property law. They must be carefully reviewed by legal counsel so that your business can receive the intended benefits from these agreements.
What is an inbound agreement?
An inbound agreement, as opposed to an outbound agreement, is when the licensee pays for the right to use the licensor’s IP or name on their products or services. Specifically, this contract involves the licensor transferring IP rights to the licensee.
Many popular brands of everyday items you purchase utilize licensing obtained from inbound agreements. For instance, Kellogg has utilized inbound licensing to put Disney characters on their breakfast food products. The Disney characters and brand name is the IP that Kellogg is using through their inbound agreement with Disney.
The purpose of an inbound agreement is to allow two parties to benefit from an IP asset. The licensor can profit from the IP by licensing it to the licensee while maintaining ownership and flexibility. Inbound licensing can also benefit the licensee by allowing them to use the licensed IP for a variety of uses.
When do I need an inbound agreement?
You need an inbound agreement whenever you want to use another party’s IP. There are many reasons why companies may want to license IP from other companies. Some of these reasons include:
- Product development: Certain businesses require another company’s software or technology to create new or better quality products.
- A marketing campaign with the licensor: These can be incredibly successful if done correctly. A famous example is the annual “McDonald’s Monopoly” campaign involving McDonald’s and Hasbro.
- Settlement of patent litigation: This usually entails the plaintiff (licensor) granting the defendant (licensee) a license to use the disputed IP.
Parts of an inbound agreement
Inbound agreements, like most IP licensing agreements, should include the following key terms:
This clause defines the licensed IP and the scope of the conveyed rights. Licensed IP rights can be exclusive or non-exclusive and have sublicense limitations and geographic or field of use restrictions.
Term and Termination
The length of license, grounds for termination, and parties’ rights and obligations upon termination or expiration are defined in this section. In most instances, the licensee will be required to stop using the IP rights and remove any reference to the IP from its products or services in the event of termination.
This section specifies whether or not improvements to the IP are allowed. Depending on the negotiation, improvements might belong to the licensee, licensor, or jointly owned.
This refers to how the licensee will pay the licensor for the right to use the licensor’s IP. Most inbound agreements require the licensee to pay a licensing fee as well as royalties. Payment amounts, payment schedules, and royalty rates should be included here.
This clause will define what constitutes a violation of the agreement and how any infringement litigation will be handled.
In this section, the licensor and licensee will determine who will be responsible for any negative consequences concerning the IP, including defective products and infringement of a third party’s IP rights.
The information exchanged, and any confidentiality obligations concerning that information should be included in this section.
A statement of how to resolve a dispute should one arise. It is common for inbound agreements to require binding arbitration or mediation instead of litigation.
This will include standard clauses like governing law, severability, and assignment rights.
Limitations of an inbound agreement
Dependence or constrictive terms
The licensee could agree to restrictions in the agreement that limits its ability to expand into new markets or create new products or services. An inbound agreement may also cause the licensee to become too dependent on the licensor’s IP, leaving them in a difficult situation if the licensor chooses not to renew the agreement or negotiates with a competitor.
Antitrust law violations
Government regulatory agencies like the U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) have been known to find certain agreements to be anti-competitive or collusive. To mitigate this limitation, both the licensor and licensee must follow the antitrust guidelines published by these agencies.
How to create an inbound agreement
Your company will have certain goals when creating an IP licensing agreement. As the licensee, you want an inbound agreement that grants your business an exclusive license to the IP rights with as few limitations or restrictions as possible.
Managing inbound agreements
Companies face a couple of major challenges with managing inbound agreements.
Complex terms: IP licensing agreements can be lengthy and complex. This is especially problematic for companies involved in many licensing arrangements because the contract terms can vary depending on the IP being licensed.
Royalty payments: Most inbound agreements require the licensee to pay royalties to use the licensor’s IP. Because of their numerous components, accurately calculating royalties due or owed can be a burden. An underpayment or overpayment of royalties can lead to a breach of contract and other potential consequences.
These challenges, among others, make inbound agreements time-consuming and hard to track.
Automating workflows for inbound agreements
If your organization is consistently involved with IP licensing, you probably struggle with a cumbersome manual process for creating and managing inbound agreements. Have you ever thought about automating it?
Contract management software can make this a reality while also greatly increasing efficiency and accuracy.
How contract management software can help simplify the process
Traditional contract management
Unfortunately, most businesses fail to store or manage their contracts properly. Valuable information can become lost or unusable if inadequate tools like spreadsheets keep track of agreements.
Separate systems. Inbound agreements are stored in separate systems that don’t talk to each other. Some might be printed and stored in file cabinets, while others are saved in computers or software programs.
Isolated processes. The negotiation of each contract must occur separately and without the aid of other agreements. You cannot compare the royalty percentage of one licensor to those with similar IP without conducting a thorough search.
Lack of transparency. Most inbound agreements are filed away or digitally saved and forgotten. You may need to reference a contract and find it is filled with esoteric language that makes it difficult for you to find and use the relevant information.
Ironclad contract management
Digital contracting is the solution to the pain points of inbound agreement management. These systems allow anyone to access and analyze your contracts easily. Here are just a few benefits of digital contract lifecycle management.
All-in-one solution. All your agreements are in the same system, letting you easily access and compare them from any device.
Single source of truth. With everything in one location, you never have to worry about conflicting information about contracts. You just need to find the right inbound agreement to see the latest version.
Complete transparency. When negotiating with a licensor, you will have access to previous royalty fees and your company’s payments to other brands. It’s effortless to find information about any inbound agreement.
Ironclad product features that help
Ironclad’s contract management platform is designed to meet the needs of your business. In addition to being a contract repository, it has all of the features to help you create or negotiate agreements.
Workflow Designer combines the power of contract workflows with a straightforward interface. It allows users to design contracts and launch approval processes in minutes without needing technical expertise. You can also use it to help your company draft legally compliant agreements.
Why use digital contract management for inbound agreements
Many companies are using inbound agreements to utilize the IP of other brands. Large organizations or companies in certain industries (like life sciences) could have hundreds of inbound agreements to manage.
Inbound agreements can either benefit or frustrate your company’s operations. Depending on the licensed IP rights, managing them may require collaboration between your Legal, Marketing, and Research & Development departments.
Digital contract management is the perfect tool to aid this collaboration and will help departments:
- Create inbound agreements quickly
- Negotiate more effectively with licensors
- Manage IP rights and royalties
Ironclad has the right tools to manage your inbound agreements
Licensing IP from other companies doesn’t have to be difficult. Ironclad’s digital contracting system keeps track of all your agreements. Its powerful tools make contract generation and revision simple and efficient.
We can assist your business with every stage of the contracting process. To see how Ironclad can help simplify the contract management process and your inbound agreements, sign up for a demo today.
Table of contents
- What is an inbound agreement?
- When do I need an inbound agreement?
- Parts of an inbound agreement
- Limitations of an inbound agreement
- How to create an inbound agreement
- Managing inbound agreements
- Automating workflows for inbound agreements
- How contract management software can help simplify the process
- Ironclad product features that help
- Why use digital contract management for inbound agreements
- Ironclad has the right tools to manage your inbound agreements