Brief Introduction About Commercialization Agreement
A commercial agreement can be defined as an agreement between two or more entities for collaborating on the commercialization of one or more products or services. Whenever an entity would launch a new product or service into the market, it comes under the purview of commercialization definition. As part of the product development and commercialization process, it enters into an agreement with the service provider or the marketer for marketing or commercializing its products in any other way.
Why Do You Need a Commercialization Agreement?
When a firm is introducing a new product or service in the market, it employs the help of a marketer to ensure that the products reach the audience. This helps in defining the responsibilities of both the parties as they are promoting the product or the service. It also helps in ensuring that the company generates revenue through higher sales of its products by expanding its outreach. Commercialization meaning would involve commercialization of every commodity including commercialization of intellectual property. To ensure all of them reach the market, an agreement is required.
Inclusions in the Commercialization Agreement
A typical commercialization agreement contains
- Names of the parties involved
- Details and description of the products to market
- The duration of the contract
- The ownership to the rights of the products
- The license to allow sub-marketers
- The restrictions on geographical sales
- Patent rights
- Shares of income from sub-licensing revenue received
- In case it is based on a franchise model, the royalties, payments and related obligations
- The responsibility of development, registration, and commercialization particularly intellectual property commercialization
- Exclusivity of sale
- Use of the company’s brand for sales
- Limitations on the use of company’s copyrights for the marketing and sale of the product
- The details of the price to market to the customers
- The responsibility of paying the expenses as part of marketing
- The amount of commission to be paid to the marketer
- Schedule of remittances and the method of such remittances
- Whether the sale would be through local distributors or through the company itself
- Any other remuneration payable to the marketer
- Compliance with the applicable laws for marketing it to customers
- Responsibility of vetting and supervising commercialization projects
- Indemnification and limitation of liability
- Warranties and representations
- Termination of the contract
- Minimum sales and royalties
- Miscellaneous provisions
- Advances and deposits
How to Draft the Commercialization Agreement?
When drafting this agreement, there are some things you should keep in mind. Some of them are
- Whether you should have minimum sales or not
- Whether the commission is based on a fixed number of sales or a variable component of the sales
- The nature of the product or the service
- The responsibility of delivery after development and registration of commodities
- Whether it will be a franchise model or an agency model
- Whether it would royalty payment or purchase by the service provider
- Permission for sub-licensing and how the revenue would be split from such licensing
- The extent of use of patents or copyrights during the process of selling
- Restrictions on the advertising, use of patents and copyrights, and use of brand names
- Restrictions on the geographical operations of the service provider
- Minimum marketing strategy to be used and the frequency of such strategy
- Licensing of products and the use of such licences.
- Whether the marketer understands the target group for commercialization
- The product analysis including the distribution of the product
- The representations and warranties of the product
Benefits of Commercialization Agreement
When you enter into a commercialization contract with the other party, you can expect several benefits. Some are
- A commercialization agreement serves as an official, legal document that specifies the respective responsibilities of each party. As such, companies can be assured of bringing their product out into the market and into the distribution channel.
- Such a contract also specifies the type of product or service that is being commercialized. It helps new companies in sparing expenses on advertisements and other marketing campaigns when they are new into the market
- It provides a platform for the companies to expand their base and increase their outreach
- It is a great test of customer satisfaction so that the company realizes the customer perception for their products.
Key Terms in Commercialization Agreement
- Nature of the products that would be sold
- Details of the terms of engagement
- Location and geographical area within which the product would be sold
- Details of minimum sales and royalties
- Use of brand names and copyrights
- Restrictions and limitations in selling or in marketing
- Details of expenses
- Payment of remuneration
- Any deposits or advances that need to be made
What Happens in Case of Violation?
In case of a breach of contract, the parties may terminate the contract immediately. Any material loss caused would need to be reimbursed would be set off against the advances or deposits. Parties may resort to arbitration for the purpose of settling their disputes. The last resort is to approach the court for legal action
Commercialization agreement is a simple document that benefits the manufacturer because he can focus on the product development while outsourcing the sales to professionals. Feedback from such sales can be consolidated so that the manufacturer can make suitable changes to the product to make it better for the market.
Sample Commercialization Agreement
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Company represented by
Mr. John Doe
Address: 640 East Capitol Street NE, Washington DC 20003
Contact number: (202) 364-1911
Third Party represented by:
Mr. Alex Bell
Address: 1901 D Street, SE, Washington, DC 20003
Contact number: (202) 673-7316
Terms and Conditions:
- Under this Agreement, “AS Enterprises” will exert their best efforts towards implementing the various activities related to “Commercialization” as described under the “Project” section in Chapter 6 of Schedule 2 and conduct this mentioned project in accordance to the mentioned project description as well as the current “Business Plan”.
- Within forty five (45) days from the closing of the calendar quarter “AS Enterprises” will provide “PLN Associates” with the following: (a) the operating statement, which reflects the Project’s overall financial activity in the previous quarter; (b) A calculation with appropriate data reflecting the Gross Cash Proceeds based on the “Operation Agreement“; and (c) Itemization of the reimbursable expenses of “AS Enterprises”.
- As requested by “AS Enterprises”, “PLN Associates” will have the obligation to exert their best efforts towards supporting the “Project” and needs to cooperate with “AS Enterprises” for executing its obligations as mentioned in the agreement or Master Agreement.
IN WITNESS WHEREOF, the parties “Company” and “Third Party” have executed this Commercialization Lease agreement as on the date set forth which is 11/18/2011 (MM/DD/YY).
SIGNED FOR AND ON BEHALF OF COMPANY BY:
SIGNED FOR AND ON BEHALF OF THIRD PARTY BY: