Table of Contents
- Download a Free Licensing Agreement Template
- The Basics: What is a Licensing Agreement?
- When is One Needed?
- The Consequences of Not Using One
- The Most Common Uses
- What Should be Included?
1. Download a Free Licensing Agreement Template
2. The Basics: What is a Licensing Agreement
A Licensing Agreement is a legal document between two parties – the Licensor, or person who owns the intellectual property (IP), and the Licensee, or person who is receiving a license to use the IP. The Licensor can be the owner of a copyright, trademark, patent, service mark, trade secret, know-how, or other IP.
A simple Licensing Agreement will identify the following basic elements:
- Licensor: the person who owns the intellectual property
- Licensee: the person who wants to use the intellectual property
- Intellectual Property: the copyright, trademark, patent, or other intellectual property that is the subject of the license
- Purpose: the purpose for which the Licensee can use the intellectual property
- Fees: the amount Licensee will be paying to use the intellectual property
- Term: how long the Licensee can use the intellectual property
Here is a helpful article from Inc. on Licensing Agreement basics.
As a reference, this agreement is also known by other names:
- License Agreement
- Intellectual Property License Agreement
- Copyright License Agreement
- Know-How License Agreement
- Patent License Agreement
- Patent and Know-How License Agreement
- Service Mark License Agreement
- Trade Secret License Agreement
- Trademark License Agreement
- Trademark and Service Mark Agreement
Looking to license software? Click here to create an End User Licensing Agreement or Software License Agreement.
3. When is One Needed?
If you own a patent on a useful piece of technology, have a copyright on a popular photograph, have trademarked a special image, or own some other invention or creative work that you want to make money on, you will need a License Agreement. This agreement allows you to set the terms of everything related that particular IP and protect your proprietary rights, including how the Licensee can use the IP, who owns the IP, who can sublicense the IP, the price of the license for the IP, and how long the Licensee can use the IP.
Several different types of IP can be covered in under this agreement:
- Copyright: original work of authorship in a written or tangible form
- Trademark: recognizable symbol, design, word, or phrase that helps users identify goods or products with a particular company
- Service Mark: recognizable symbol, design, word, or phrase that helps users identify services with a particular company
- Patent: property right to an invention
- Know-how: expert skill or information
- Trade Secret: confidential business information
Here is a helpful article explaining the different types of intellectual property that can be licensed.
There are a few different types of licenses you can grant on the above IP – exclusive, non-exclusive or sole.
An exclusive license gives the Licensee the exclusive and only right to the use the IP – not even the Licensor can use the IP. Once a Licensor grants an exclusive license to someone, no other licenses on that IP can be granted to anyone else.
A non-exclusive license grants the Licensee a license to use the IP, but the Licensor is free to also use the IP and to grant licenses to whomever else it wants. Therefore, many parties can hold licenses to the same IP at the same time.
A sole license grants the Licensee an exclusive license, but the Licensor keeps the right to use the IP. So, although the Licensor will not grant any additional licenses, the Licensor can continue to use the IP and any previous licenses can still remain in effect.
4. The Consequences of Not Using One
Without this agreement, the owner of valuable IP would not be able to make money on that IP or control how the IP is used out in the world. And individuals and companies that need certain IP to grow their business or make a living might not be able to have access to it.
Here is a list of some of the suffering having this agreement could prevent:
|Loss of Time|
- time spent preventing others from using IP in unwanted ways
|Loss of Time
- time spent defending use of IP
|Loss of Money|
- another business uses your IP without paying you
|Loss of Money
- unable to capitalize on goodwill from valuable IP
- goodwill of business harmed or trademark diluted
- receive cease and desist letter
In 2015, Apple Inc. and telecom equipment company Ericsson agreed to a global license agreement, ending a year-long patent dispute between the companies.
5. The Most Common Uses
Here are some possible scenarios where you might consider using this agreement:
Trademark owner of a popular slogan Manufacturer wanting to print the slogan on t-shirts
Blogger talking about a beauty product The beauty product company wanting to use the blogger’s content as a review
Photographer who took photos at a resort hotel The resort hotel wanting to use the photos for a brochure
Patent holder of a certain part Company who needs the part to make their machines
There are a number of different fees you could charge for your IP:
- Issuance Fee: An issuance or fixed fee that a Licensee must pay for the license. The issuance fee can be paid up-front (a paid-up license) or in installments. The fee can be a pre-purchase where the Licensor agrees to purchase an inventory of licenses, a minimum commitment where the Licensor agrees to purchase a minimum amount of licenses at defined intervals, or a combination of both where the Licensor agrees to purchase an inventory of licenses at defined intervals.
- Renewal Fee: A renewal or maintenance fee is usually an annual fee that is paid when when the license automatically renews.
- Royalty Payment: A variable or fixed fee that a Licensee must pay to continue using a license. This fee is usually a percentage of net sales or gross revenue.
- Milestone Payment: A variable or fixed fee that a Licensee must pay if they reach certain milestones, such a certain number in sales. This fees allows the Licensor to share in the success any commercialization of the licensed IP.
Your licensing deal could contain only one or any combination of these payment methods.
In 2014, Microsoft sued Samsung, alleging Samsung missed a royalty payment estimated to be over $1 billion.
6. What Should be Included?
A simple Licensing Agreement should generally have at least the following:
- Who are the Licensor and Licensee
- What is the intellectual property being licensed
- Where can the Licensee use the licensed intellectual property
- When will the license end or be renewed
- Why or for what purpose Licensee can use the intellectual property
- How much and when is Licensee paying for the license
Here are some additional provisions that may be included in your agreement:
Related to the IP
- Confidentiality – parties will keep any confidential information confidential
- Notice and Markings – Licensee will not remove any notices or markings from IP
- Ownership of IP – Licensor remains the owner of the IP
- Protecting IP – Licensee will diligently protect the IP
- Quality Control – Licensee must comply with Licensor’s quality control standards
- Sublicenses – Licensee cannot grant sublicenses to the IP
- Disclaimer – Licensor is not liable for any claim or loss as a result of Licensee’s use of the IP
- Indemnification – Licensee will indemnify Licensor for any claim or loss as a result of Licensee’s use of the IP
- Limitations on Liability – neither party will be liable for punitive damages
- Representations and Warranties – Licensor owns the rights to IP and IP does not infringe or violate any IP of a third party
- Assignment – Licensee cannot assign agreement without Licensor’s consent
- Entire Agreement – agreement supersedes all prior agreements
- Governing Law – which state’s laws govern the agreement
- No Waiver – failure to enforce a provision is not a waiver
- Severability – if one part of the agreement is invalid, the rest is still valid
Here is a helpful article from Inc. with tips for licensing intellectual property.