Sublicense

Sublicense: A sublicense is a grant by a licensee of some of the rights it holds under a licensing agreement to a third party, the sublicensee: the right to make, distribute or sell licensed product in a stated territory, channel or product category. The licensee can pass on only rights it holds, and only as the head agreement between licensor and licensee allows. Whether sublicensing is permitted at all is a term of that agreement, and where it is permitted the agreement sets the conditions, which can include the licensor's prior written approval of each sublicensee, approval of the sublicense document itself, limits on which rights can be passed on, and a requirement that the sublicense carry the head agreement's obligations down to the sublicensee. Reporting runs in a chain. The sublicensee reports its sales and pays royalties to the licensee under the sublicense; the licensee reports to the licensor under the head agreement, including the sublicensed sales or the sublicense income, whichever the head agreement names as the base. Permission to sublicense does not by itself move the licensee's obligations onto the sublicensee: unless the head agreement or a release from the licensor says otherwise, the licensee stays answerable to the licensor for royalties and compliance on sublicensed sales.

What makes a sublicense work sits in the pass-through. The head agreement's obligations reach the sublicensee only if the sublicense puts them there: product and artwork approvals, quality standards, trademark usage rules, insurance, the reporting cadence, the audit clause, and the sell-off and termination provisions. A sublicense without an audit clause gives the licensee no contractual right to the sublicensee's records when the licensor audits the licensee. Timing has to nest, too: the sublicensee's statement has to fall due early enough for its figures to reach the licensee's own statement by the head agreement's due date. And a sublicense cannot give rights for longer than the licensee holds them, so the end of the head agreement ends the sublicensee's rights unless the licensor has agreed otherwise. Two relationships sit close to a sublicense and are not one. A licensing agent acts on the licensor's behalf and holds no licensed rights of its own; licensees report through the agent to the licensor, not to the agent as a sublicensor. A contract manufacturer that makes product for the licensee to sell holds no right to sell it, although the head agreement can require the licensor's approval of the factory separately.