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.
What to Include
- 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
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 |