Key Elements of a Licensing Agreement

So you’ve decided you want to license your intellectual property. Now what? Just like tangible property, intellectual property has monetary value. You have to protect it. A solid licensing agreement can help you protect, manage and control your intellectual property when giving another entity permission to use it.

Licensing agreements don’t have to be long or complex. In fact, agreements that are simple and straightforward are usually more effective—and, more importantly, enforceable. Below are a few of the key terms you’ll want to cover in your agreement.

Parties

Your licensing agreement should clearly identify which parties are entering into the licensing agreement. You’ll also want to specify whether subsidiaries of your licensee’s company will be permitted to use the intellectual property.

Scope of License

The scope of the license should be clearly specified. Since you’ll be retaining ultimate ownership rights, your licensing agreement will grant limited rights to the other party. Make sure the boundaries are clear. At the same time, you’ll want to avoid being to restrictive with rights so licensees will want to use your intellectual property. Before you draft a licensing agreement, be sure you understand the different types of property rights, such as:

• Trademarks – words, symbols or logos identifying products manufactured or sold, distinguishing them from other goods
• Copyrights – original works of authorship in any tangible form
• Patents – inventions

Most licensing agreements are non-exclusive, which means you can sell your intellectual property rights to multiple parties.

Payment Terms

Most licensing agreements include terms controlling the revenue streams generated by licensed intellectual property. This can include a one-time licensing fee, recurring royalties or payments, or a combination of both. Payment terms may also cover ongoing maintenance fees. Does the licensee need to reach specific sales targets? If so, your payment terms should also cover the consequences of failing to meet sales goals.

Other Licensing Terms

There are many other terms that can be specified in a licensing agreement, including:

• Warranties
• Prohibited uses
• Ability of licensee to sub-license or transfer rights
• Licensee’s rights to source code
• Indemnity
• License expiry date
• Limitations on the licensor’s liability
• Requirements for acceptance, training and testing
• Ability to terminate the agreement

The above are just a few of the key points to consider when drafting a licensing agreement. Don’t want to start from scratch? Our license agreement template is simple, straightforward and editable. While laws relating to intellectual property are always changing, our template provides a great starting point for drafting—and enforcing—your licensing agreement.