What Is a License Agreement?
A License Agreement is a written contract between the owner of a patent or invention, brand, or trademark and a person wishing to obtain the rights to use the patented or trademarked products or services. The license grants permission for the Licensee, which is contained in the agreement and has certain stipulations (parameters). The latter serve as guidelines to be followed.
- Licensing Agreement;
- Licensing Contract.
The party who owns the property is referred to as the Licensor and the party who is using the Licensor's property is called the Licensee. This type of agreement is different from an Intellectual Property Release, where the owner of the property gives up their rights for the property, does not receive continued compensation (royalty payments), in exchange for giving permission.
Licensing Contracts are used in almost every commercial domain these days. In other terms, any License Agreement takes place between the owner of some kind of intellectual property (a piece of art, an invention, or a written work) and an individual interested in getting permission to employ that property. Three of the most commonly used types include the following:
- General License Agreement. This contract grants the Licensee the right to produce and sell goods or provide services under the brand name or trademark owned by the Licensor.
- End-User License Agreement (EULA). This is a contract signed by an individual that purchases, downloads, or installs software which the Licensor owns.
- Photo Licensing Agreement. This document is signed by a photographer and an individual or company that wishes to license the use of the images. The agreement lets the original owner retain the copyright of their photos while giving the Licensee the legal right to use the images.
What to Include in a License Agreement?
Like any other contract, a Licensing Contract specifies details about the parties involved and outlines the terms and conditions of the license parameters, such as:
- The geographical area where the property may be utilized.
- Duration of usage granted to the parties.
- Quality of the work (e.g. format, size, pixels, etc.)
- Specification as to exclusivity or non-exclusivity of a certain arrangement.
- Possibility of a derivative work (modifications to the work).
- Scaling terms: it applies to the so-called royalty fees.
A royalty is a fee paid to the owner for the usage of their invention, asset or property (e.g. patents, copyrighted works, franchises, or sometimes even natural resources). Royalties are meant to compensate the owner or inventor and are legally binding. Royalty payments can be calculated in a different manner, for example by a one-time flat fee, by a certain dollar amount for each unit of the licensed item, or by a percentage of the total net sale. The terms and conditions are discussed in every case, as every case is particular. Make sure you go over the how and when the royalties will be made and what documentation will be required to calculate the royalties.
Licensing Agreements in the States are covered under federal law. However, for the sake of safety, it is best practice to be as detailed in your stipulations as possible. If there is a dispute, the specifics of your rights need to be stated in a clear and unambiguous fashion. Since it is a legal contract with subtle complexities that may be hard to grasp for someone with little experience, it is advisable to recur to the services of an attorney who has a thorough knowledge of intellectual property law.
The goal of the License Agreement is to allow the owner of intellectual property to be paid for their property all the while being in control of how their property is used and distributed or propagated. The Licensee can expand their business by acquiring other people’s property and protect themselves from copyright infringement claims.
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