Author: Kamron Abedi

Hello! My name is Kamron Abedi. I grew up in Southern California and attended Arizona State University for my undergraduate degree. I am currently a law student at the Penn State Dickinson School of Law, and I will be graduating in the Spring of 2019. I will be completing a certificate in Entrepreneurship Law along with my JD, and I plan to practice in business/transactional sector post-graduation. If you have any questions or comments you would like to send to me directly please contact me at kua68@psu.edu. Enjoy!

The Health Care Entrepreneur’s Quick Guide to Important Laws: Part 2

By: Anahita Anvari

Health Care Entrepreneurs need to know about the False Claims Act, Qui Tam Provisions and HIPAA. At a recent event, “Health Law 101: Key Legal Issues for Health Care Companies,” speakers identified the top five legal and regulatory issues for health care entrepreneurs to be aware of: The Anti-Kickback Statute, Stark Law, False Claims Act, Qui Tam Provisions, and HIPAA.

This post aims to provide a general overview of the latter three laws: False Claims Act, Qui Tam Provisions, and HIPAA. The Anti-Kickback Statute and Stark Law were addressed in Part 1 of this two-part post.

WHAT ARE THE FALSE CLAIMS ACT (FCA) AND QUI TAM PROVISIONS, AND WHAT DO THEY MEAN FOR ME?

The FCA protects the federal government from paying false or fraudulent claims. You should take steps to comply with the FCA if your business serves patients of government health care programs such as Medicare or Medicaid.

A claim, defined generally, is a request or demand for money or property from the government. Under the FCA, it is illegal to submit claims for payment to the government that you know or should know are false or fraudulent. The FCA also imposes liability when one acts to inappropriately avoid paying money to the government or conspires to violate the FCA. Therefore, you should not submit a claim for payment if, for example, the claim reflects a service that was not truly performed, the bill price is higher than the true price, or the claim incorrectly lists the provider who performed the services. There are no exceptions to this rule.

a. How Are FCA Violations Filed and What Are the Consequences?

Lawsuits for FCA violations may be filed by private citizens (also known as “Relators”) on behalf of the federal government. These lawsuits are permitted under the Qui Tam provisions of the FCA. Relators may receive statutory rewards for filing these lawsuits.

FCA liability may result in a civil monetary penalty for each false claim. Because each false claim is its own penalty, these fines can be detrimental. For example, the Office of Inspector General recently settled a case with a Connecticut provider for violating the FCA. The provider had billed Medicare for procedures that were already included in another billed item, essentially double-billing the government. The settlement was for $792,076.76.

B. How Can I Comply with the FCA?

You should take appropriate steps to comply with FCA by maintaining and implementing an effective compliance program. The seven essential elements to create an effective compliance program are detailed in Part 1 of this post.

Be aware that some states have their own false claims acts. These state laws may differ from the federal law. You should consult with an attorney regarding the laws in your state.

WHAT IS HIPAA AND WHAT DOES IT MEAN FOR ME?

The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) is a federal regulation that governs the privacy and security of protected health information. Protected health information (PHI) is individually identifiable health information in any form (electronic, paper, or verbal) that relates to an individual’s physical or mental health condition, or to the provision and payment of health care to the individual. HIPAA protects PHI when it is transmitted by a covered entity or its business associate. Therefore, your business must comply with HIPAA if it qualifies as a covered entity or business associate. Click here to determine if your business qualifies as a covered entity or a business associate.

A. Are There Exceptions to HIPAA?

There are some limited exceptions to HIPAA. Covered entities may use or disclose PHI without authorization for treatment, payment, and healthcare operations, such as utilization review and credentialing. Other examples include judicial and administrative proceedings, research, or public health emergencies. You should consult with an attorney or compliance professional to be sure the use or disclosure falls within an exception.

B. I Am a Covered Entity or a Business Associate…Now What?

A covered entity or business associate must comply with HIPAA. You should be familiar with the major HIPAA rules and take measures to comply with them:

  • The Privacy Rule establishes criteria for protecting PHI, gives patients certain rights to their health information, and permits use and disclosure of PHI under specific circumstances.
  • The Security Rule requires covered entities and business associates to develop and implement safeguards to protect the confidentiality, integrity, and availability of electronic PHI.
  • The Breach Notification Rule sets forth notification requirements should a breach of unsecured PHI occur.
  • The Enforcement Rule outlines the procedures for investigating potential HIPAA violations and imposing liability.

C. What Are Examples and Consequences of HIPAA Violations?

Generally, HIPAA requires you to protect PHI from unauthorized access, use, or disclosure. Examples of violations include lost or stolen devices that contain PHI, posting PHI on social media, or an employee disclosing PHI to friends or coworkers.

HIPAA violations may result in civil monetary penalties (CMPs), criminal penalties, or mandatory exclusions from participating in Medicare. CMPs range from $100 per violation to $50,000 per violation, depending on the severity. Criminal penalties can result in jail time from one to ten years. For example, a hospital in Texas agreed to a $2.4 million settlement for violating HIPAA after it released the name of a patient to multiple media outlets in a press release.

D. How Do I Comply with HIPAA?

You should comply with HIPAA by implementing safeguards to protect PHI from unauthorized use and disclosure. Examples of safeguards include proper training of employees, use of encryption and decryption of electronic messages, conducting audits, keeping inventory of hardware and electronic devices, conducting periodic risk assessments, reviewing Business Associate Agreements, reporting any security incidents, and consulting with an attorney.

This post was authored February 4, 2019 and reproduced with the author’s consent from here.

Anahita Anvari, at the time of this post, is a second-year law student at Penn State’s Dickinson Law. She is from Southern California and is interested in health care law. Anahita founded the Health Law and Policy Society and is currently serving as an Associate Editor of the Dickinson Law Review.

Sources:
  • For a complete list of sources, see original post here.
  • https://www.justice.gov/sites/default/files/civil/legacy/2011/04/22/C-FRAUDS_FCA_Primer.pdf
  • https://www.hhs.gov/hipaa/for-professionals/faq/covered-entities/index.html
  • https://www.hhs.gov/hipaa/for-professionals/privacy/guidance/business-associates/index.html
  • https://hipaaqsportal.hhs.gov/a/index
  • https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/Downloads/HIPAAPrivacyandSecurity.pdf
  • https://sites.psu.edu/entrepreneurshiplaw/2018/11/05/health-care-entrepreneurs-guide-to-important-laws/
  • https://www.govinfo.gov/app/details/USCODE-2010-title31/USCODE-2010-title31-subtitleIII-chap37-subchapIII-sec3729
  • https://www.law.cornell.edu/uscode/text/31/3730
  • https://www.hipaajournal.com/what-are-the-penalties-for-hipaa-violations-7096/
  • https://www.hipaajournal.com/hipaa-compliance-checklist/
Photo Sources:
  • http://fcpablog.squarespace.com/blog/2014/11/6/the-false-claims-act-a-primer-for-whistleblowers.html
  • http://www.vhha.com/programs/event/webinar-hipaa-and-new-technologies-using-texting-and-social-media-within-the-rules/
  • https://blog.v-comply.com/compliance-healthcare-industry/

 

Data Security Update: What Businesses Need to Know About a Growing Trend

By: Ian Brinkman
https://www.secupi.com/ccpa-mini-gdpr/

The most recent EU General Data Protection Regulation (“GDPR”) penalty assessed against Google provides a reminder to all businesses that the data protection landscape is changing, fast.[1]  Not only can data protection regulations cross international borders, but similar schemes are popping up in the United States at the state level. Furthermore, data protection requirements no longer just apply to a business’s customers’ data. The Pennsylvania Supreme Court made this fact known in its most recent decision requiring employers to protect their employees’ data as well.

State Mirrors the Global Model: California Copies Europe

In mid-2018, California enacted AB 375, the California Consumer Privacy Act of 2018 (“CCPA”).[2] This new, sweeping data privacy law will take effect January 1, 2020. Just like with the GDPR, businesses need to start thinking about the steps that need to be taken to be in compliance with the CCPA. The CCPA has similar tenets as the GDPR, but its finer points differ to benefit both businesses and consumers.

   What is the CCPA?

The California Legislature enacted the CCPA in response to the rampant political and commercial misuse of consumers’ personal data. Like the GDPR, the CCPA provides consumers the right:

(1) to know what information is being collected, (2) to know whether their information is sold or disclosed, (3) to opt out of sale or disclosure, (4) to access their information, (5) to non-discrimination on price and service for exercising their privacy rights.[3]

Businesses must implement policies and procedures to make sure customers may reasonably exercise these rights. The CCPA extends a private cause of action to consumers, providing them with the option of either statutory damages ($100-$750) or actual damages, whichever is greater, for each violation. Furthermore, the California Attorney General can levy fines from $2,500-$7,500 for each violation.[4]

   What are the differences between the CCPA and the GDPR?
https://threatpost.com/chilis-doesnt-leave-data-breach-on-the-back-burner/131955/

While the general contours of the CCPA may appear to heavily favor consumers, the law is balanced in its application. First, unlike the GDPR (see more on the GDPR here), only personal data of California residents in California fall under the new law. Thus, businesses servicing only out-of-state travelers do not need to worry about complying with the law. The CCPA is also less broad in application in that only certain businesses need to comply, those that:

(1) earn $25 million in revenue; (2) sell or share, for profit, personal information of 50,000 consumers, households, or devices; or (3) derive 50 percent of revenue from selling personal information.[5]

There is more good news for businesses. The private cause of action is only triggered upon an unauthorized data breach. Also, statutory damages are unavailable if the business cures its violation within 30 days after it receives notice.[6] Finally, the California Attorney General has yet to release the mandated regulations that the law requires, which may offer further clarification and amendment on some of the law’s more burdensome provisions.

Right Here at Home Too: Pennsylvania Supreme Court Brings Employees’ Data into the Foray in Dittman v. UPMC.

On November 21, 2018, the Pennsylvania Supreme Court left its own mark on the cybersecurity landscape affecting businesses. Before November 21, two things were true: (1) an employer owed no special duty regarding employees’ data, and (2) employees needed to show more than a mere economic loss, from the misuse of their data, to recover damages from their employer.

However, the Supreme Court of Pennsylvania recently made it clear that employers have an independent legal duty to use reasonable care to protect employees’ data that are stored electronically and accessible via the internet. [7]  Furthermore, if an employee can show the employer breached its legal duty, rather than an action based on a contractual relationship, he or she can sue for purely economic damages.[8]

Dittman v. UPMC also sets forth a nightmare scenario for an employer. The employees, as a condition of their employment, were required to provide their Pittsburgh based medical employer with certain data. When 62,000 employees’ data was stolen in a breach, and then used to file fraudulent tax returns, those employees commenced a class action lawsuit against their employer. In addition, the court held that the duty extended to former employees, along with those currently on the payroll.[9]

Taking Action and What is Ahead

  • Once new entrepreneurs have concluded that their companies need to comply with the growing regime of data protection laws, they can be proactive without risking unnecessary expenditures due to fear-driven over compliance. Most of these laws require, or at least encourage, creating a data protection plan. Part of this planning forces a business to know the extent of the data they collect and what they intend to do with it. Businesses can get a head start by sitting down with their IT department, third-party vendors, and management teams to outline detailed goals, deliverables, and implementation strategies. Once these items are in place, companies can implement other measures new laws might require or ones that the companies find useful.  Here is a blog post that elaborates.
  • Companies can also help themselves by understanding that these types of data protection laws are a sign of a wider trend stemming from governments and regulators trying to get a handle on the interconnectedness between businesses, data, and consumers. What is apparent is that the number, scope, and reach of these laws is only increasing. 2019 will usher in not only new data protection standards, but also new laws affecting businesses that traditionally did not need to worry about the laws outside of their state.

Ian R. Brinkman, at the time of this post, is a third-year law student at Penn State’s Dickinson Law. He is originally from Central Pennsylvania and will start his legal career at Gibbel, Kraybill and Hess in Lancaster, PA as an associate in their Corporate practice group. He also helps coordinate the Volunteer Income Tax Assistance clinic at the law school.

Sources:

[1]Matt Jeweler, Massive GDPR Fine Is a Wake-Up Call to Get Compliance and Cyber Insurance Squared Away, Pillsbury-Policyholder Pulse Blog (Feb. 5, 2019), https://www.jdsupra.com/legalnews/massive-gdpr-fine-is-a-wake-up-call-to-34398/

[2]A.B. 375

[3]A.B. 375, Section 2(i)

[4]A.B. 375, Section 3, Subsection 1798.150

[5]A.B. 375, Section 3, Subsection 1798.140

[6]A.B. 375, Section 3, Subsection 1798.150

[7]Dittman v. UPMC, 196 A.3d 1036, 1056 (Pa. 2018)

[8]Id.

[9]Id. at 1038

 

Forming an S-Corporation: A Good or Bad Idea?

By: Starlin Colon

If you have been thinking about creating your own business, then you probably have read or heard that setting up a Limited Liability Company (LLC) is the best way to go about it. Although an LLC is generally a good option, forming an S-Corporation (S-Corp) could be a viable option as well, depending on the purpose of your future business. In this post, I will outline some of the benefits and drawbacks of forming an S-Corp as compared to the benefits and drawbacks of forming an LLC or other business entity type.

Formation

The first piece of information to look for when deciding to form a business entity is the initial procedures required to form the entity. For an S-Corp, the entrepreneur is required to file the articles of incorporation with the state. Each state sets out its own form for the articles, so they differ on what exactly is included in them. Generally, the articles include items such as the name of the S-Corp, names of the officers and directors, and the name of the individual incorporating the entity.

For an LLC, the entrepreneur must file the certificate of organization with the state. That certificate is similar to the articles of incorporation of an S-Corp as it identifies the company and the members, along with including optional information the member would like to include.

Liability

One of the main benefits of having either an LLC or an S-Corp is the fact that they both provide limited liability to the members or officers, respectively. Limited liability means that the personal assets of the individuals are generally protected in case the company is sued or goes bankrupt. The peace of mind of not having their personal assets at risk is extremely valuable to most entrepreneurs, and it most likely is to you as well.

Limited liability is not absolute, however, and could be lost in two main scenarios. First, an owner of a business may face personal liability through piercing the corporate veil. Courts may apply this remedy when the owner commingles the company’s assets with personal assets. This concept is true for both S-Corps and LLCs. Second, limited liability does not protect an individual from torts committed by that individual. This means that if you own either an S-Corp or an LLC, you will be personally liable for any torts you commit.

Taxation

There are several aspects of taxation that make S-Corps and LLCs very popular. First, both types of companies have pass-through taxation. Pass-through taxation means that the entity itself is not taxed. The profits or losses are passed to the owner and filed with the owner’s personal income tax return. This is a great advantage over other entity types since it prevents double taxation on the income where the company is taxed then the owners are taxed separately.

Self-Employment Tax. The self-employment tax is one big difference in taxation between the S-Corp and the LLC. This tax is the tax that owners of companies must pay for Social Security and Medicare. The current self-employment tax rate is 15.3%. This means that if you own an LLC, you will pay 15.3% of your income to the IRS in self-employment tax. In an S-Corp, the company would pay half (7.65%) and you would pay the other half. Although this may seem like the same amount, since you own the company, the advantage is that an S-Corp does not have to pay all of its profits to its employees in wages. The S-Corp is allowed to give distributions. Consider the following example:

You make a $200,000 profit. As a member of an LLC, 15.3% is paid as self-employment tax, which equals to $30,600. As an S-Corp, you could be paid a reasonable salary of $160,000, with the remaining $40,000 being given as a distribution not subject to self-employment tax. In this case, the company and you would each pay $12,240, for a total of $24,480. This is a tax savings of $6,120.

The self-employment tax benefit is probably the most common reason why a person would decide to form an S-Corp over an LLC.

Ownership

One drawback of forming an S-Corp over an LLC is that the IRS sets restrictions in the ownership and formation of an S-Corp. According to the IRS, an S-Corp:

      • must be domestic;
      • cannot have more than one-hundred (100) shareholders;
      • can only issue shares to individuals, not businesses;
      • must have only one class of stock; and
      • will have any subsidiaries added to the assets of the S-Corp.

These restrictions are very different than LLCs and other business entities. LLCs can have members from anywhere in the world. There is no cap on the number of members, businesses can be members, and there are no restrictions on subsidiaries. If the IRS restrictions are not problematic for your business model, then it may be beneficial to form an S-Corp for the tax benefits.

Conclusion

If you are planning to start a company, think about the purpose of your company in order to better identify which entity would be the most beneficial to form. S-Corps and LLCs are very similar but have some big differences in the self-employment tax amount and the ownership restrictions. It is important to know the distinctions between types of entities in order to make an informed decision and prepare yourself for success.

*This post was checked for currency on February 9, 2019 and reproduced with permission by author Starlin Colon.  Original post can be found here.

Starlin Colon, at the time of this post, is a third year law student from Penn State’s Dickinson Law. Originally from the Dominican Republic, he plans to take the bar exam in Pennsylvania.  A Penn State grad, he is interested in business transactional law.

 

References & Photo Sources

https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes

http://uscode.house.gov/view.xhtml?req=(title:26%20section:1361%20edition:prelim)

https://www.corporatedirect.com/start-a-business/entity-types/s-corporation/

http://www.mainesbdc.org/llc-vs-scorp/

 

Is Your Business Data Secure from a Breach? What to do.

By: Kamron Abedi
https://www.omm.com

Every day businesses have their data compromised due to hacking, natural disasters, and human error. In 2017, there were 1,579 publicly recorded data breaches effecting 1.9 billion consumer records and cost the businesses involved an average of $3.62 million in damages. Fires, hurricanes, and other similar natural disasters destroy paper files and servers that store data. Finally, the leading cause of data loss is human error. People make mistakes and delete massive amounts of data accidentally. These incidents can happen to any business, large or small, so it is important to take the necessary steps to make sure your data is secure and backed up. It’s important to know what to do from a legal perspective when this happens.  Below are four steps to take to ensure that your business’ data is protected from hacking, natural disasters, and human error, together with comments from a legal perspective.

Determine What Data Needs to be Secured

Most businesses have employee records, client records, trade secrets, proprietary information, financial records, and marketing information that need to be secure in order for the business to perform successfully and maintain compliance with privacy laws. For example, employee records relating to your employees’ health are protected by HIPPA, and disclosure of those records come with penalties and fines for your business. Trade secrets and proprietary information are crucial to the success of your business and if those records are compromised it can be financially disastrous for your business.  Even though trade secrets and proprietary information are protected by statutes, once they are out,  there is no going back. Therefore, it is important that you identify the information that your business needs to protect before deciding how to protect that information.

Create a Lean Data Retention Plan

Once you have identified the type of data that your business needs to retain and secure, implement a plan to keep only the necessary data and purge all unnecessary data from your business’ files and servers. Keeping unnecessary records and data will only make it more difficult and costly to secure and backup your business’ data. An effective data retention plan ensures that your business’ data is safe and allows your business to focus as little energy and resources to data retention as possible. When the data retention plan is in place, make sure that all of your employees are trained and understand the process.

Backup and Secure the Data

https://www.websta.org/tag/DigitalSafety

It is important to backup your data in multiple locations in order to ensure that your data is not lost completely if one of your storage locations is compromised. If your business has paper files, it is imperative that you electronically backup all of your important or confidential files. A simple pipe burst or even a fire in a neighboring building can destroy paper files, and without a digital backup, they are lost forever. Depending on the amount of data your business needs to backup, you can use a flash drive, external hard drive, cloud backup, or other online data management service. Do not store your backup of your files in the same place where you keep the primary copy of the files as a natural disaster or accident can destroy both copies of your data.

Next, ensure that your data is secured, both in your primary storage space and your backup storage space. When keeping paper files, ensure that you keep them in a locked space and only grant access to the employees that absolutely need access to the records. In the case of a cloud backup or online data management service, ensure that the company you are using to store your has an effective data security plan that will keep your files encrypted and out of the hands of hackers.

Privacy law Updates and Changes

Finally, be sure to keep up with updates in privacy laws and changes in your business’ data retention needs. A data security plan is not effective unless it adapts to the growth of a business and any new regulations that effect the business.

What to do if your data has been breached?

In all states of the USA, there are data breach laws.  There are also federal regulations that apply.   These laws require businesses to notify individuals who have been impacted by security breaches that may compromise their personally identifiable information. It’s important to know when and how you are required to inform individuals who have been impacted.  In some states, you are required to notify individuals within 45 days.  Most states also require written notice.  While it would be impossible to sum all of this up in one short blog post, you can see the complete state-by-state data breach guide here.

Note that if you do business in Europe, the GDPR has laws that apply to you as well.  See Inside Entrepreneurship Law blog post:  What Every Entrepreneur Needs to Know About the GDPR.

In closing, if you have had a breach, contact an attorney who is familiar in this area to help you immediately.  Time is of the essence when it comes to compliance in this area.

Kamron Abedi, at the time of this post, is a third year law student at Penn State’s Dickinson Law. He is originally from Southern California and will start his legal career at Stevens & Lee in Reading, PA as an associate in their Corporate practice group. He is also the Founder & President of the Business Law Society at Dickinson Law.

 

Sources:

https://www.ftc.gov/news-events/blogs/business-blog/2018/09/your-business-prepared-emergency-your-data

https://www.ispartnersllc.com/blog/5-steps-developing-data-retention-policy/

http://www.govtech.com/blogs/lohrmann-on-cybersecurity/new-guide-on-state-data-breach-laws.html

https://www.computerweekly.com/news/450297535/Human-error-causes-more-data-loss-than-malicious-attacks

So You’ve Invented Something… Now What? (Licensing Your Product)

By: Kamron Abedi
Photo credit: https://www.score.org/blog/product-licensing-beginners

Many people think that if you invent something you should start a company.  But you actually have two options: start a company or license the product to another company.  Starting a company can be costly and inefficient for singular products or products in certain industries, so it’s important to keep your mind open to another alternative – Licensing.

Licensing entails partnering with another business that has the capacity to produce and sell your product. In establishing this kind of relationship, you will need a licensing agreement. In licensing relationships, you as the inventor will be the “licensor” and the person you enter into the contract with is the “licensee.” In return for the use of your product, the licensee will pay you a negotiated percentage of all product sales revenues in the form of royalties. The main reason licensing is so attractive is because you do not have to do the work, and you still receive a percentage of the revenue generated from the use or sale of your product or invention.

How do you decide what to do?

Photo Credit: ipwatchdog.com

It’s helpful for you to decide whether you will be able to bring in more revenue producing your product yourself, or if you will be able to create a larger stream of revenue by licensing your product to an established company. Once you determine that licensing is the best avenue, the three main issues to consider are: protection of intellectual property, finding a licensee, and negotiating the agreement.

Protecting your intellectual property prior to licensing

 If you are licensing a brand name, logo, art, or a product that is eligible to be patented, you should ensure that your intellectual property is protected and registered with the United States Patent & Trademark Office prior to beginning licensing negotiations. This process requires consulting an intellectual property attorney who can take the proper steps to register your intellectual property. If you begin to negotiate contracts with other companies prior to registering your patent or trademark, then your potential business partners could steal your invention and become a competitor. Once the intellectual property is protected, you can begin to enter into negotiations to license your product.

Requiring potential business partners to sign Confidentiality agreements is a good idea as well.

How do you choose a licensee?

 After you have protected your intellectual property, the next step is to decide who will be the licensee. Many licensing agreements have an exclusivity clause, which means that the licensee will have the exclusive rights to your product. For this reason, it is important to choose the licensee that can generate the most profit possible. You should research potential licensees to confirm that they have the operational capabilities to distribute the product to a wide enough share of the market (your attorney will refer to this research as due diligence). Inquiries into the potential licensee’s past sales records, supply chain data, and overall reputation in the industry will reveal whether the potential licensee has the capabilities to produce and/or distribute the product.  It’s usually a good idea to ask the potential licensee to provide sale projections as well.

If you license a product to a company that cannot properly distribute the product, then the licensing agreement will be detrimental to both parties.

Negotiating the licensing agreement

Photo Credit: http://crosnt.com/management-team/business-deal/

 There are certain provisions you need to negotiate and include in your licensing agreement.  You should discuss royalty computations with your attorney to determine the best strategy possible for your situation. Sometimes it makes sense to take a straight percentage of revenue, however, royalty computations can be much more complicated depending on the industry and circumstances.

Most licensing agreements provide protection for the licensor by including sales performance requirements.  Such requirements allow you to assess penalties or even terminate the agreement if a licensee fails to meet agreed upon requirements. Performance requirements can vary depending on what is being licensed and what the industry is. For example, in the toy industry, licensors may require that the licensee meet certain sales goals. Such sales performance requirements allow for you to take a larger share of the profits if the licensee fails to meet them.

If a potential licensee fails to agree to performance clauses, you should reconsider entering into an exclusive licensing agreement with that licensee. It raises concerns when a potential licensee doesn’t have the confidence to agree to performance levels.  To maximize potential revenue, it would be more prudent to reserve the ability to work with additional licensees rather than one exclusively. In these circumstances it is customary to allow exclusivity only in certain markets or territories.  Sometimes no exclusivity is granted at all.

In most cases, the protection of intellectual property, finding a licensee, and negotiating the agreement are the most important issues to tackle, but they are not the only issues to consider before entering a licensing agreement. If you are looking to license a product, brand, or other intellectual property, consult an attorney prior to entering into any agreement.  An attorney can be instrumental in drafting and negotiating the best agreement possible.

*This post was authored on October 21, 2018.

Kamron Abedi, at the time of this post, is a third year law student at Penn State’s Dickinson Law. He is originally from Southern California and will start his legal career at Stevens & Lee in Reading, PA as an associate in their Corporate practice group. He is also the Founder & President of the Business Law Society at Dickinson Law.

 

Sources:

https://www.upcounsel.com/blog/top-things-to-consider-when-entering-into-licensing-agreements

https://www.entrepreneur.com/article/230557

https://www.amanet.org/training/articles/intellectual-property-licensing-and-confidentiality-agreements-an-overview.aspx

https://www.inc.com/stephen-key/why-having-a-performance-clause-is-more-critical-than-your-royalty-rate.html