Licensing

What is Licensing?

A licensing agreement is a legal contract between two parties (often referred to as ‘the licensor’ and ‘the licensee’) under which the licensor gives permission to the licensee to use its products or services for a specific period and, usually, for a specified payment.

Licensing agreements may cover the sale of goods or the provision of services and the licensor will usually grant to the licensee the right use its brand names or trademarks, or perhaps to use patented technology which is owned by the licensor.

For its part, the licensee will usually be required to agree to a number of safeguards to protect the assets or property being licenced from being lost, damaged or infringed, and of course to agree payment terms for the privilege of doing so.

What are typical examples of licencing agreements?

Licensing agreements can cover a wide range of situations. For example, a business may want to licence the right to sell goods bearing the branding and logo of a third party, or perhaps more commonly those providing online software or services may choose to licence their technology or the use of their online platform to users under a licensing arrangement. Often, this latter type of agreement is called a ‘Software as a Service’ agreement or an ‘SaaS’ agreement for short.

Other types of licensing can include technology or patent licences which may allow a company who has developed commercially useful technology to rapidly achieve market penetration by allowing third parties to exploit the technology in ring-fenced territories. This saves the technology owner valuable time which would otherwise be spent trying to establish subsidiary offices or new companies in a host of different countries around the world, and of course the enormous investment costs which would usually be involved in doing so.

What type of clauses does a typical licensing agreement contain?

Licensing agreements can be fairly lengthy and complex documents. Typical provisions you would expect to find in these documents would include a description of what is being licensed, any exclusivity or territorial restrictions; financial aspects such as royalty payments, any minimum sales requirements; renewal terms; the licensor’s right to monitor quality control, and of course termination provisions.

Other important terms will be confidentiality and protection of the intellectual property rights of the owner. The licensor is, after all, giving the licensee the right to use its hard-earned name, resources and reputation. It’s crucial from the licensor’s point of view that the licensee does not damage the assets or the brand during the term of the licence.

From the licensee’s perspective, it may be important to secure certain territorial rights, such as exclusivity to use the licensed material in a particular market or geographic territory. And, if pricing of the licence is dependent on sales of goods or services, royalty payment terms will need some careful drafting.

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