What is a Licensing Agreement?
What is a License?
A license is a right to use someone else’s property for a certain purpose and within given guidelines. You can have licenses for anything.
I worked for an organization that had a license to use part of a building for their office instead of a lease. Recently, I helped a client that licensed a beauty product to her new company. She went into this business with a partner that had different aspirations for the company and she feared that their interests may not always align. In the license, she was given the right to revoke the license if the new company goes in a direction that she is morally or ethically opposed to.
Why You May Want a License?
If you’re in business, you may be thinking of licensing your products or your property or you may want to license someone else’s products to grow your company. This article will go over some common elements of a licensing agreement, so you can start to think about how you might use licensing as part of your business strategy.
Common Elements in a License
A few common elements that you may see in a licensing agreement include: 1) the rights to use the licensed product; 2) payment terms; 3) whether the license is exclusive or non-exclusive; 4) the term of the license; and 5) when the license may be terminated.
Rights to Use
As another example, consider your subscription to Netflix. A Netflix subscription lets you watch videos on Netflix during the period which your subscription is paid. You’re not allowed to copy those videos to resell them or distribute them in any way.
A license can be exclusive or nonexclusive. If you grant an exclusive license, that means only the licensee--that is, the person who has the rights to the license--can use the license. For example, my client gave an exclusive license to her new company to use her beauty formula. This means, she cannot give the rights to her beauty formula to any other person or company. In addition, she cannot even personally exploit her beauty formula independently of the new company.
If a license is non-exclusive, it means more than one person can be granted a license. When you purchase a Netflix subscription, you get a non-exclusive license. Netflix is free to sell subscriptions to as many people as it chooses.
A license has a term. That means, it has a beginning date and an end date. Some licenses are perpetual meaning that a single fee pays for the license and it’s never ending. Sometimes when you buy software, you get a perpetual license to use that software in exchange for your purchase price.
Your Netflix subscription, on the other hand, has a term of one month. When you pay for your Netflix subscription, you get a one month license to view the videos on Netflix. Once your month is over and you stop paying for your subscription, your rights to access the videos on Netflix also goes away.
License agreements also have termination clauses. Most licenses can be terminated if you don’t abide by the terms of the license agreement, even perpetual ones. The termination clause will specify how the license can be terminated and who can terminate the license.
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This article is provided for informational purposes only and should not be construed as legal advice. Read our disclaimer here.