Create a licensing agreement to have a written legal contract between two parties that gives permission from a property owner to another party to use their intellectual property.
Learn about licensing agreements below and how to create one today.
What is a Licensing Agreement?
A Licensing Agreement is a legal document between the Licensor, the person who owns the intellectual property (IP), and the Licensee, or the person receiving a license to use the IP. The
Licensors can own a copyright, trademark, patent, service mark, trade secret, know-how, or other IP.
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
Elements of a Licensing Agreement
A simple Licensing Agreement will identify the following essential 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 the Licensee will be paying to use the intellectual property
- Term: how long the Licensee can use the intellectual property
Types of Licensing Agreements
You can grant a few licenses on the above IP – exclusive, non-exclusive, or sole.
Exclusive License
An exclusive license gives the Licensee the exclusive and only suitable one to 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 given to anyone else.
Non-Exclusive License
A non-exclusive license grants the Licensee the right to use the IP, but the Licensor is free to use the IP and grant licenses to whomever it wants. Therefore, many parties can hold licenses to the same IP simultaneously.
Sole License
An exclusive license grants the Licensee an exclusive license, but the Licensor keeps the right to use the IP. So, although the Licensor will not give any additional permits, the Licensor can continue using the IP, and any previous licenses can remain in effect.
When is a Licensing Agreement Needed?
If you own a patent on a valuable piece of technology, have a copyright on a famous photograph, have trademarked a particular image, or hold some other invention or creative work you want to make money on, you will need a License Agreement.
This agreement allows you to set the terms of everything related to 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
Benefits of a Licensing Agreement
- Layout the guidelines and rules that cover the use of the licensor’s IP
- Details financial information, including when payment is due and how much
- Saves time, money, and hassle
- Helps licensors retain control over their IP
Fees and Royalties
There are several 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 rights; 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 acquire an inventory of licenses at specified 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 as a specific number in sales. This fee 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.
Examples of Licensing Agreements
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 |
How to Write a Licensing Agreement
To create a licensing agreement, you can use our document builder to create one in minutes. Fill in the blanks, and your license agreement will be ready in PDF or Word format.
It would be best if you answered the questions, and our builder will do the rest.
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 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 can the Licensee 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 – The licensee will not remove any notices or markings from the IP
- Ownership of IP – Licensor remains the owner of the IP
- Protecting IP – The licensee will diligently protect the IP
- Quality Control – The licensee must comply with Licensor’s quality control standards
- Sublicenses – The licensee cannot grant sublicenses to the IP
Liabilities
- Disclaimer – The Licensor is not liable for any claim or loss as a result of the Licensee’s use of the IP
- Indemnification – The licensee will indemnify Licensor for any claim or loss as a result of the 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 – The 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
Licensing Agreement Sample
The sample licensing agreement below shows what a typical agreement looks like:
Consequences of Not Using a Licensing Agreement
Without this agreement, the owner of valuable IP would be unable to make money on that IP or control how the IP is used out in the world.
Individuals and companies that need specific IPs to grow their business or make a living might not be able to have access to them.
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 |
