Licensing agreement made simple

The license is an important element in every form of technology-driven business relationship. A license facilitates the transfer of valuable legal rights and technology from one party to the other in order to further the overall purposes of the relationship. A licensing arrangement is created when one party, the licensor, which owns, or otherwise controls the right to specify the uses of, a valuable legal right, grants to the other party, the licensee, the right or license to utilize the legal rights for the purposes specified in the contract between the parties. In consideration for the grant of the license, the licensee agrees to compensate the licensor, perhaps by the payment of a flat fee or by payment of an amount determined by reference to amounts received by the licensee from the use of the licensed rights. But in certain cases, the compensation can be "in kind" like when the licensee agrees to deliver finished goods to the licensor for resale.



A license is not an outright assignment of the legal rights from the licensor to the licensee, since the licensor will retain actual ownership of the licensed subject matter. When the licensing agreement comes to an end, the licensor will get back all the licensed rights and the licensee cannot use any of the elements of the licensed subject matter still eligible for legal protection. Basically a license is some sort of a rental or lease arrangement with respect to the subject matter. The compensation payable by the licensee is generally calculated with the intent of arriving at a fair rate of return in relation to amounts expended by the licensor in developing the licensed technology. For its part, a licensee compares the rental costs of the license to the burden of independently developing legal and viable alternatives to the licensed subject matter. A business should take advantage of licensing agreement to grow.



The scope of the license will vary depending upon the particular types of intellectual property rights included therein. For example if the license is regarding a patent, copyright, or trademark, the license will grant the licensee the right to practice the patented invention, or to use the copyrighted works or trademarks, without fear that the licensor will exercise its legal rights to prevent practice or use by the licensee. The right will be limited to the purposes set out in the license. A license that involves trade secrets requires an actual transfer of the underlying business information or technical data while a license that involves an invention described in the patent or works or marks covered by copyrights and trademarks does not require the transfer of such information and the licensor can keep such information confidential.



Licensing agreements can be characterized by the subject matter of the license, such as a patent or trademark license, or by the permitted functional uses of the licensed subject matter, such as a manufacturing or distribution license. If your business is entering into a licensing agreement with another party, consult with an experienced business attorney.