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Sample Heads of Agreement (with hints)

The pre-formatted text below can be selected and copied into any program capable of printing at 12 pitch (12 characters per inch) with a left margin of .75 inches and a top margin of 1 inches. Select Heads.htm for text that is not pre-formatted or HeadsPrint.htm for a raw version you may be able to format and print from your browser. Select HeadsOfAgmtWO.htm for a version without the embeded hints.

                         An Example of "Heads of Agreement."
Please note:  everything in Italics is for guidance only; everything else is 
typical language. While this type of outline of terms covers the key points of the 
business negotiation, each case is different and the "Heads of Agreement" should tackle 
all the major issues that you can anticipate. In addition, there are numerous points such 
as the right to inspect records, how disagreements are to be settled, how trade secrets 
are to be protected and other points that are not simply "boilerplate"; experienced legal 
counsel is indispensable.

                                 "HEADS OF AGREEMENT"

                          Name of Product or Technology

1. Licensor:         Your name or company name
                     City, State, Zip Code

2. Licensee:         Customer's name
                     City, State, Zip Code

3. What is Licensed: Description of the product or technology or application of 
                     invention. If you want to limit the scope of the license, here is 
                     the place to start. For example, you can limit the product by 
                     weight, by size, by composition, etc.

4. Proprietary Rights:
                     List patent numbers and patent applications with dates, country by 
                     country. Describe generally the "Know How" package.

5. Support:          What you will provide in addition to the proprietary rights. 
                     Examples:  Samples, ingredients, equipment, anything up to a turn 
                     key operation.

6. The Grant:        A ______________* license to make, have made, use and sell the 
                     Product in the Territory under the Patent Rights.
                     Also, a _____________* license to make, have made, use and sell the 
                     Product under the Know How.

                     *Fill in:  exclusive or non-exclusive or semi-exclusive or sole. 
                     Note that Patent Rights need defining, e.g. to include 
                     continuations-in-part, divisions, improvements. If you are licensing 
                     know-how, do so with a separate grant clause. If you are licensing a 
                     trademark or other rights, do so with a separate agreement.

7. Option Period:    State period of time, exclusive or non-exclusive, information and/or 
                     services to be supplied. Also option extensions, if any.

8. Option Price:     State amount to be paid at signing or otherwise. Also, amount 
                     creditable against license payment or future royalties.

9. License Payment:  State sum to be paid upon exercise of option or at signing if no 
                     option exists. State whether any or all of such sum is creditable 
                     against future royalties or otherwise refundable and on what basis.

10. Royalty Rate:    Specify percent of Net Sales and periodicity of reporting and 
                     payments. Provide details if royalty rate changes by volume, by 
                     year, or other circumstances. Consider dividing royalty between 
                     patent rights and Know How so that the agreement continues if the 
                     patent should be lost.

11. Territory:       State the geography.

12. Term of License: Concurrent with the life of the last-to-expire patent or a period of 
                     ten (10) years if no patent rights shall exist.

                     While the foregoing is a good example, this is always a negotiable 

13. Minimum Royalties:
                     An annual minimum royalty, payable in quarterly installments shall 
                     be based upon approximately one-half of mutually agreed anticipated 
                     Net Sales.

                     Minimum payments are 100% negotiable. The purpose is to assure 
                     the licensee's full attention to maximizing the technology without 
                     being so punitive as to kill the deal. In most instances, a 
                     substantial advance royalty or minimum guaranteed annual royalty 
                     will serve to help assure licensee performance.

14. Term of Agreement:
                     The Agreement may be terminated by either party by reason of an 
                     uncured breach upon sixty (60) days notice. The Agreement may be 
                     terminated by the Licensee during the first five (5) years of the 
                     Agreement upon ninety (90) days notice by paying to the Licensor the 
                     remaining minimums for the said first five (5) years of the 
                     Agreement. After said first (5) years, Licensee may terminate the 
                     Agreement at any time without penalty upon ninety (90) days notice.

                     The foregoing is one way to help assure a licensee's best efforts at 
                     the outset. Always a negotiable area. As a guideline, consider 
                     termination with a single payment equal to the minimums for the 
                     succeeding five years or so of the agreement. Be sure to provide for 
                     disposition of unsold inventory.

15. Patent Filings and Maintenance:     
                     Licensor shall be responsible for all patent filings, for 
                     prosecution and maintenance of patents and for all costs relating 
                     to same.

                     Keep control of your own patent work. If you need financial help, 
                     ask the licensee to reimburse you for any filings made at his 
                     behest, e.g., foreign filings.

16. Improvements:    Best case - include without cost all improvements made by the 
                     licensor and get back a non-exclusive right to use and license 
                     outside of the territory any improvements made by the licensee.

17. Indemnification: Licensee shall hold licensor harmless from any and all product 
                     liability claims caused by manufacture and/or sale of the Products 
                     by Licensee, excepting for direct negligence on the part of the 

                     Licensee has insurance, Licensor doesn't and can't afford it. This 
                     is a "must."

18. Infringement:    Licensee shall have the first right to bring appropriate action 
                     against infringers at its own expense and shall retain any recovery 
                     therefrom. If Licensee shall fail to take action within ninety (90) 
                     days after learning of such infringement, then Licensor may 
                     institute appropriate action at its expense and retain any recovery 

                     There are an infinite number of ways to handle the issue of 
                     infringement. The above is reasonably balanced, but the situations 
                     vary widely. Issues include possible escrow of royalties, 
                     reimbursement of costs, etc. Best solution often is for Licensor and 
                     Licensee to simply agree to work in good faith to deal with any 
                     infringement situation.


                     The above all-caps disclaimer protects your negotiating position 
                     until both sides have agreed to terms.


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