A Brief Introduction About the License Agreement
What is a license agreement?
The definition of licensing agreement is the permission by the licensor to allow the licensee to produce goods or services patented by the licensor.
The different types of licensing agreement are:
- Patent license: Under the Patent license, you cannot use certain parts of the patented technology. The licensee can make or sell something patented by you provided they pay you a royalty
- Trademark license: Trademark license agreement addresses the type and quality of the licensed product or services. There is a higher degree of control over the licensing partner compared to patent license
- Copyright license: Though Copyright license, there are six different rights under this category, you get limited access to the rights. You may get the distribution rights but not the rights to edit/add to the product
- Trade secrets: Under this type of licensing arrangement, confidentiality is key. Your licensing partners need to be specified what and how they will use your product or service.
Who Takes the License Agreement? – People Involved
The agreement is taken by two parties, the licensor and the licensee. The licensee is granted the right to use a patent or trademark, produce or sell goods or use technology patented by the licensor.
In return for the right to use the licensor’s property, the licensee pays the licensor a royalty and adheres to certain conditions laid down by the licensor.
Purpose of the License Agreement – Why Do You Need It
The purpose of a license agreement is to ensure that the rights of both the licensor and the licensee are protected. The licensor is assured that his/her patented technology or copyright is not violated by the licensee, and he or she gets the royalty payments on time.
The licensee is also assured that he or she can use the licensor’s patent or trademark and produce goods or services on a commercial basis as long as he or she is paying the licensor on time and is not infringing any copyright or trademark.
You can prepare a license agreement by referring to a license agreement template online.
The most important aspect of the agreement would be the financial arrangement. Payments are in the form of guaranteed minimum payments and a royalty on sales. The licensee must meet the minimum sales target for the contract to be renewed.
Contents of the License Agreement – Inclusions
As this agreement is between the owner of the patent or licensor and the producer or licensee, their names must be clearly mentioned in the agreement.
A license agreement must include:
- The date of commencement
- Description of the product or service being licensed
- Address of client and sender
- License grant: The licensor is providing a non-exclusive, non-transferable license for the use of the asset
- The royalty payable to the licensor by the licensee for providing the license
- Licensee’s obligations: The licensee can use the asset only for the purpose mentioned.
- Intellectual property rights
- Limitation of liability: The licensee indemnifies the licensor of any loss or liability due to the use of the asset
- Confidentiality: Disclosure by either licensor or licensee to a third party is not permissible unless mentioned in the agreement.
How to Draft the License Agreement?
While drafting a license agreement, you need to keep the following points in mind:
- The names of the parties to the agreement and their relationship
- The licensee should pay the licensor the agreed license fee on the execution of the agreement and each anniversary of this agreement.
- Termination: The agreement can be terminated if there is a breach of contract by the licensee or insolvency of the licensee
The key terms of a licensing agreement are:
- The agreement which refers to the licensing agreement
- Confidential information means information which is not to be divulged
- Asset means the product or service provided by the licensor
- Intellectual property rights refer to the copyright, trademark, design or patent being shared by the licensor
- Party refers to the person or business entering into this agreement
You can find a licensing agreement example online for reference.
Negotiation Strategy
In this agreement, the licensor agrees to provide his or her patented product or service in return for a fixed fee called a royalty. While the licensor can negotiate the minimum sales required to renew the contract, the licensee can negotiate the royalty rate.
Benefits & Drawbacks of the License agreement
Benefits:
- The interest of both the licensor and the licensee are protected through this agreement. The licensor is assured of a minimum sales guarantee as well as a royalty for permitting the licensee to use the patented asset or technology. This can be found in any sample license agreement.
- The licensee might be a small businessman who is unable to invest in technology. Through this agreement, the licensee can access it.
Drawbacks
- Minimum sale for renewal: The licensor may not renew the license of the licensee if the latter is not able to achieve the minimum target stipulated in the agreement over and above the royalty payable. This will result in loss of business for the licensee.
What happens in case of violation?
What is an end-user license agreement?
This is an agreement between the licensor and the purchaser applicable for software, where the purchaser is given the right to use the software.
This agreement benefits both the licensor and the licensee. The licensor does not have to worry about marketing his or her invention, and the licensee gets superior technology for a fee and is able to market it for a profit.
However, if the license violates any clause in the contract or is declared insolvent, the contract stands terminated.
With a license agreement, the licensor can enjoy guaranteed minimum payments along with a fixed royalty on sales for the duration of the agreement.
The licensee can be assured of assured returns on investment in the licensor’s assets, which would increase demand.
You can Download the Free License Agreement customize it according to your needs and Print. License Agreement is either in MS Word, Excel, or in PDF.
Sample License Agreement
