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
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
When is a Licensing Agreement 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 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
There are a few different types of licenses you can grant on the above IP – exclusive, non-exclusive, or sole.
Exclusive License
An exclusive license gives the Licensee the exclusive and only right to the use of 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.
Non-Exclusive License
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.
Sole License
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.
Consequences of Not Using a Licensing Agreement
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:
| Licensor | Licensee |
|---|---|
| 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 |
| Mental Anguish - goodwill of business harmed or trademark diluted | Mental Anguish - receive cease and desist letter |
Most Common Uses for a Licensing Agreement
Here are some possible scenarios where you might consider using this agreement:
| Possible Licensors | Possible Licensees |
|---|---|
| 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 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 and commercialization of the licensed IP.
Your licensing deal could contain only one or any combination of these payment methods.
What Should be Included in a Licensing Agreement?
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
Liabilities
- 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
Legal Speak
- Assignment – Licensee cannot assign the 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
Sample Licensing Agreement
The sample licensing agreement below details an agreement between a licensor and a licensee. The licensor agrees to allow the licensee to use the licensed IP according to the specified terms.
