Hi there. It sounds like you want to create a licensing agreement between you (in your capacity as the Master Distributor in Australia) and a water bottling company.

A licensing agreement is a contract typically between two parties whereby one party (licensor) agrees to grant another party (licensee) a licence. The nature and scope of the licence can be defined within the agreement and may grant the licensee the right to use or sell a particular product or service in exchange for a fee.

When drafting or negotiating a licencing agreement, there are several issues to keep in mind. Exclusivity is a key factor that can significantly affect the value of the agreement. A licensor will not want to be bound by an exclusive licence unless they are receiving adequate remuneration.

Specific limitations should also be negotiated between the parties. Limitations can involve the way the licensed product or service is used or sold, the geographical area in which this activity occurs, the fees or revenue that can be generated from the licensed product or service, and any rights to sub-licencing.

The value of the agreement may also be impacted by intellectual property rights. The intellectual property in the product or service (such as a patent, design, trade mark, etc) usually remains with the licensor. A licensee will need to know if the agreement allows them to make any modifications or enhancements to the product or service and whether this affects the underlying intellectual property. If enhancements are made, the licensee may want to be remunerated accordingly.

Fees are another big factor. If you want to charge a royalty fee and increase it incrementally, you need to make sure a clear fee structure is implemented from the start. Note that payment provisions in licence agreements need to be carefully drafted so as to avoid unintentionally incurring withholding tax under Australian taxation laws. This issue can arise when a royalty for use of an intellectual property right is payable by an Australian resident to a non-resident.

From the arrangement you have described, the licensing agreement may need to also be signed by the head company in the USA, especially if the CEO wants 50% of the licence fee plus any royalties. If this is the case, the agreement will involve a party outside Australia, so the agreement may need to be consistent with US law, or otherwise satisfactory to the head company.

Alternatively, you could enter a licencing agreement with the local water bottling company, and then enter a separate contract with the head company that covers your fee arrangement with the CEO (i.e. 50% licence fee plus royalties).

Suggested way forward

The licencing agreement that is right for you will depend heavily on the scope of your business and your commercial interests. Speaking to a commercial lawyer will help you understand your options and the best course of action. By pressing the “Consult a Lawyer” button, LawAdvisor can help you search for experienced lawyers and obtain fee proposals for their services. Costs for legal advice and representation will vary between providers based on experience and the scope of services.