A License Agreement is a legal document drafted between two parties known as the licensor (that is, the person that owns the intellectual property, also known as IP) and the Licensee (the person that receives a license to use the intellectual property).
The Licensor may be the owner of a trademark, copyright, patent, trade secret, know-how, service mark, or other intellectual property. When it comes to drafting a License Agreement document, you would usually need the service of an attorney. However, you can find a free licensing agreement sample online to get started with preparation.
Types of License Agreement
There are different types of license agreements that apply to intellectual property. These include exclusive agreement, non-exclusive agreement, and sole agreement. Let us look at these briefly.
- Exclusive License Agreement
- Non-Exclusive License Agreement
- Sole License Agreement
This type of license agreement sample gives an exclusive right to the Licensee to use the intellectual property. This means that only the Licensee can use the IP and not even the Licensor has the right to use it. When a Licensor gives an exclusive license to the Licensee, it becomes impossible to grant the same license to anyone else.
This type of license gives the right to the Licensee to use the intellectual property. However, the Licensor also has the right to grant the licenses to use the IP to anyone else or use it on their own. This means that many parties can be granted licenses for the same intellectual property at the same time.
This gives an exclusive license to the Licensee but the Licensor also keeps the right to use the intellectual property. However, the licensor cannot grant additional licenses on the same IP but they have the right to use it.
How Does A License Agreement Work
A license agreement protects the interest of both the licensor and the licensee. When this agreement is not in effect, the owner of valuable intellectual property will be unable to make money on it or control its use around the world. It also becomes impossible for the companies or individuals that need specific intellectual property to make a living or grow their business to achieve their goals. You can find sample licensing agreements to use online.
However, when the license agreement is in place, this issue is resolved. So, how does it work? When an individual or company develops a creative piece known as an IP, such as a popular slogan, photography, or any such intellectual property, they can go into an agreement with an individual or company that needs it.
To use an IP, the licensee may be required to pay some fees. These include issuance fee, renewal or maintenance fee, royalty payment, and milestone payment. It does not mean that all these payments will be required to get a license to use an IP. It all depends on the sample license agreement that is drafted and agreed on by both parties.
Elements of a Typical License Agreement
A Licensing Agreement example should contain specific information and terms relating to the document. Some of the basic elements that are included are as follow:
- Details of the Licensor and Licensee
- Details of the intellectual property (IP) that is being licensed
- The territory where the Licensed intellectual property can be used by the Licensee
- When the License agreement expires or should be renewed
- Purposes for which the Licensee can use the IP
- The fee that the Licensee is expected to pay for the license
Additionally, there are some extra provisions that both parties may want to include in the agreement. Some of these include:
- Notice & Markings: This means that the Licensee may not remove any markings or notices from the intellectual property
- Confidentiality: Both parties must keep and maintain all confidential information
- IP Ownership: This specifies that the Licensor remains the only owner of the intellectual property
- Quality Control: This means that the Licensee must maintain and comply with the quality control standards enumerated by the Licensor in the agreement.
- IP Protection: This means that the Licensee must protect the intellectual property diligently.
- Sublicenses: The Licensee has no right to grant any sublicenses to the intellectual property.
Tips for Creating a Licensing Agreement
Licensing your assets or your company’s comes with a lot of benefits and you can find examples of licensing agreements between companies to use. However, before you go ahead with it, there are some factors that you must consider. This will help you to create a mutually benefitting License Agreement.
- Establish IP Ownership
- Highlight the Terms
- Explain Details of the Royalties
You must clearly state the ownership of the IP in the agreement and make sure that it has not been licensed to anyone else. Also, check to be sure that no other person or company is currently using the asset. If you are the owner, you may want to get the IP registered, trademarked, or copyrighted. You should not go into a licensing agreement without verifying the ownership of the IP.
Ensure the process or product is clearly and completely described. Also, avoid any ambiguity to prevent any misunderstanding on the IP that is being licensed.
The details of payment, including the amount and when it is paid, should be clearly stated. You should also state whether or not the original owner holds the exclusive right to the ownership of the IP or not. If there is going to be an advancement on royalty, this should be clearly stated.
Other tips you should pay attention to when drafting a License Agreement include:
- Description of the monitoring process and quality assurance
- Review of government regulations concerning the agreement
- Consider all possibilities and ‘What-Ifs’
- Understand the tax issues
Many things should be considered when drafting a License Agreement. It is important to pay attention to the details. Whether you are buying or selling an IP, you should never rush over signing the dotted lines. Take your time to review the agreement and share it with your attorney. To get started, you can find free licensing agreements templates online.