A non-compete clause, or NCC, is a type of contract that restricts an individual from competing against their employer for a set period of time. It is typically included in an employment agreement, but it can also be included in a license agreement between two businesses. In this article, we will explore what a non-compete clause license agreement is, why it is used, and what factors to consider when drafting one.
What is a Non-Compete Clause License Agreement?
A non-compete clause license agreement is a contract between two businesses that allows one party to license the use of a product or service from another party. The agreement includes a non-compete clause that prohibits the licensee from competing against the licensor for a specified period of time and within a particular geographic region.
The purpose of the non-compete clause in a license agreement is to protect the licensor`s interests by preventing the licensee from using the licensed product or service to launch a competing business. The clause also ensures that the licensee does not gain an unfair advantage by using the licensor`s proprietary knowledge or intellectual property to their benefit.
Why is a Non-Compete Clause License Agreement Used?
A non-compete clause license agreement is used when a business wants to license out their product or service to another business but wants to protect their interests. By including a non-compete clause in the agreement, the licensor can ensure that the licensee does not compete with them during the license period and for a specified period after the agreement is terminated.
For example, a software company may license out their software to a business for a specified period. The license agreement will include a non-compete clause that prevents the licensee from using the licensed software to develop a competing product or service.
What Factors to Consider When Drafting a Non-Compete Clause License Agreement?
When drafting a non-compete clause license agreement, there are several factors to consider to ensure the agreement is valid and enforceable. Here are a few things to keep in mind:
1. Geographic Scope: The geographic region where the non-compete clause applies must be reasonable and not overly restrictive. For example, a non-compete clause that prevents a business from competing worldwide may not be enforceable.
2. Time Period: The time period for the non-compete clause must be reasonable. Most states have restrictions on how long a non-compete clause can be in effect.
3. Scope of Competition: The scope of competition must be defined clearly. The clause should specify the types of products or services that the licensee cannot compete with.
4. Consideration: The non-compete clause must provide the licensee with adequate consideration, such as payment for the license or access to the licensor`s proprietary knowledge.
5. Enforcement: The non-compete clause must be enforceable under state laws. It is important to consult with an attorney when drafting the agreement to ensure that it will hold up in court.
A non-compete clause license agreement is an essential tool for businesses that want to license their products or services while protecting their interests. When drafting the agreement, it is important to consider the geographic scope, time period, scope of competition, consideration, and enforceability. By carefully crafting a non-compete clause license agreement, businesses can protect themselves from unfair competition and enhance their ability to conduct business effectively.