Types of Licensing

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There are many ways of categorizing the different types of licensing that exist. The kind of agreement that you choose will depend on various factors. These factors include the number of parties involved, the location of the licensor and licensee, and the industry in which the product is being licensed.

What is a Licensing Agreement?

A licensing agreement is a legal contract. One party that owns certain intellectual property (IP) grants a second party the right to use that IP for a specific purpose, typically in return for payment or some other benefit. Licensing agreements must lay out the scope of the license granted and all limitations to use.

What’s Included in a Licensing Agreement?

The following are some key points that should be included in a licensing agreement:

• The Licensor(s) and Licensee(s). The licensor is the party granting the license, while the licensee is the party receiving it.

• The copyrighted material or patent being licensed. This should be explicitly identified, including any associated trademarks, trade names, and service marks.

• The purpose of the license. This should be specific and outline what the licensee can do with the copyrighted material or patent.

• Geographic limitations. Suppose the licensee is only authorized to use the copyrighted material or patent within specific geographic boundaries. In that case, this should be stated in the agreement.

• Duration of the license. The duration of the license must be clearly identified in the agreement.

• Licensor's rights. Licensors should retain all rights not expressly granted to the licensee, including ownership over derivative works created using their copyrighted material or patent.

• Termination clause. This section details how and when each party can cancel or terminate the licensing agreement, usually with a set length of time for advance notice (e.g., thirty days' notice). Licensors may also reserve the right to cancel licenses if they believe it is necessary to protect their original work. Usually, this is reserved only for cases involving severe infringement by users against terms outlined in the agreement. Licensing agreements are typically perpetual unless otherwise agreed upon by both parties.

• Compensation. The licensor should outline what, if any, form of payment the licensee is required to make in return for using the copyrighted material or patent. This could be a one-time fee or an ongoing royalty stream.

Here’s an article about what should be included in a licensing agreement.

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Different Licensing Agreements

Patent licensing

These cover innovation and science. Patent licensing agreements feature a patent owner allowing someone else to use their patent.

Trademark licensing

Trademarks signify commercial sources, like brand names, slogans, or logos. Trademark licensing agreements let the trademark owners allow others to use their IP.

Copyright licensing

Copyrights are often for paintings, music, movies, or characters. In addition, copyright licensing agreements are often used in consumer goods or distributorships.

Trade secret licensing

Trade secrets aren’t registered with the government. Unlike copyrights, trademarks, and patents that are most valuable when registered with the federal government, trade secrets are protected only by their being a secret.

A great example of this is the KFC chicken formula. As such, trade secret licensing agreements usually come with a non-disclosure agreement.

Here is an article about different types of licenses.

Types of Licensing Agreements

There are many different types of licensing agreements based on a few factors that impact licensing agreements:

Number of Licensors and Licensees Involved

• Unilateral Licensing Agreement. A unilateral licensing agreement is made between one Licensor and one Licensee. Licensors love unilateral licensing agreements because you can make money without sharing it with anyone else. Licensees like them because they only need to deal with one Licensor.

• Bilateral Licensing Agreement. A bilateral licensing agreement is made between two Licensors and two Licensees. Licensors love bilateral licensing agreements because they share their profits with another Licensor. And Licensees like them because they only have to deal with two companies instead of four or more!

• Multilateral Licensing Agreement. A multilateral licensing agreement is uncommon but has three or more Licensors and/or Licensees who agree to license a product from each other under specific terms and conditions. Licensors love multilateral licensing agreements. They get to share their profits with another Licensor. They can expand their market in an otherwise impossible way when dealing with only one Licensor. And Licensees like them because they don't have to deal with three or more Licensors!

Duration

• Perpetual. A licensee purchases the right to use the IP once and can use it for a lifetime.

• Term. Either the licensee pays a one-time fee for a certain term, or the licensee can pay-per-use.

Type of Relationship Between Licensor and Licensee

• Exclusive licensing agreement. When a copyright holder grants an exclusive license to use their copyrighted material or patent, they give up all unreleased rights for that particular purpose. They allow the licensee (the party receiving the license) to be the only user of those materials for that specific purpose.

Key Points to Consider

• An intellectual-property attorney should provide the terms of any copyright license. They will assist with ensuring that you obtain all necessary rights while at the same time protecting your interests against unauthorized use.

Advantages of Licensing

Licensing agreements have a number of advantages for both licensors and licensees.

Income. Licensors can generate income from their copyrighted material or patent without fully exploiting it themselves.

Examples of Licensing

• Microsoft Licensing. Microsoft licenses its software products through various agreements, including volume licensing, Select Plus, Open Licensing, and Campus Agreement.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

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Samuel R.

Samuel R.

My career interests are to practice Transactional Corporate Law, including Business Start Up, and Mergers and Acquisitions, as well as Real Estate Law, Estate Planning Law, Tax, and Intellectual Property Law. I am currently licensed in Arizona, Pennsylvania and Utah, after having moved to Phoenix from Philadelphia in September 2019. I currently serve as General Counsel for a bioengineering company. I handle everything from their Mergers & Acquisitions, Private Placement Memorandums, and Corporate Structures to Intellectual Property Assignments, to Employment Law and Beach of Contract settlements. Responsibilities include writing and executing agreements, drafting court pleadings, court appearances, mergers and acquisitions, transactional documents, managing expert specialized legal counsel, legal research and anticipating unique legal issues that could impact the Company. Conducted an acquisition of an entire line of intellectual property from a competitor. In regards to other clients, I am primarily focused on transactional law for clients in a variety of industries including, but not limited to, real estate investment, property management, and e-commerce. Work is primarily centered around entity formation and corporate structure, corporate governance agreements, PPMs, opportunity zone tax incentives, and all kinds of business to business agreements. I have also recently gained experience with Estate Planning law, drafting numerous Estate Planning documents for people such as Wills, Powers of Attorney, Healthcare Directives, and Trusts. I was selected to the 2024 Super Lawyers Southwest Rising Stars list. Each year no more than 2.5% of the attorneys in Arizona and New Mexico are selected to the Rising Stars. I am looking to further gain legal experience in these fields of law as well as expand my legal experience assisting business start ups, mergers and acquisitions and also trademark registration and licensing.