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A licensing agreement is the authorized usage of a patent, trademark, or copyright belonging to another. This agreement includes the right to produce and sell goods and services owned by another person or business. It is a contract between two or more parties – the licensor(s) and licensee(s). There are three different types of licensing agreements: 1) exclusive license agreements, 2) sole license agreements, and 3) non-exclusive license agreements.
If done well, a license agreement is a mutually beneficial arrangement between an intellectual property owner and a business operator. Both the owner and the operator benefit. Under a license, the intellectual property protects both the licensor and licensee from infringement. A licensee can sue under the agreement and get legal protection in court from the patent, trademark, or copyright issued. Read about licensing agreement advantages and disadvantages. Read about the 7 kinds of intellectual property in out article “What is Intellectual Property?”
Exclusive Licensing Agreements and Contracts for Intellectual Property
An exclusive licensing agreement is a legal contract between parties that gives the licensee the exclusive rights to make and sell the piece of intellectual property owned by the licensor. The main copy of the exclusive licensing agreement must be in writing. This exclusive right is authorized for a specific amount of time in exchange for some type of compensation. In contrast to the word exclusive, these agreements and contracts are only exclusive to the licensee. The owner, licensor, may have multiple exclusive contracts with more than one exclusive licensee. The sole license agreement is where the licensing contract is mutually exclusive.
Having more than one exclusive licensee remains an exclusive arrangement with the intellectual property owner (licensor). In an exclusive licensing contract, an exclusive licensee can be “co-exclusive,” meaning multiple exclusive licenses are granted to different people or businesses rather than only one. Co-exclusive licenses can be established with multiple contracts, or a single license contract can be written with co-exclusive licensees limited to a specific group exclusive to the licensor.
Exclusive licensees have all legal rights to the intellectual property. In an exclusive licensing agreement, the licensees are considered owners of the intellectual property for the authorized duration of time. This gives licensees the same rights as the licensing owner. Rights under a licensing contract include the ability to sue infringers. Read more about infringement in our article “What Does Infringement Mean?“
Example of an Exclusive License Agreement
Exclusive license contracts are an option where a patent owner and one or more manufacturers agree that the manufacturers will be the only ones authorized to make and sell a product protected under intellectual property rights. For example, a person invents a new cold coffee brewing machine and is issued a patent. The person exclusively licenses the patent rights to three manufacturers to make and sell the new cold coffee brewing machines in three different countries. This type of license arrangement is frequently used to make different models or versions for different countries and to control the quality of the products produced.
Basic Parts of an Exclusive License Contract
Exclusive licenses typically make for a great partnership between partners and businesses, as all parties have aligned incentives. An exclusive license agreement contains many parts but should include the following basic details:
- Subject matter
- Summary of usage
- Purpose of usage
- Contact details of all parties
- Any necessary definitions
- Processes and products already licensed
- Retained rights
- Authorized uses
- Any government contract details
- Trademark and copyright notices
- Plan of action if infringement occurs
- How information will be put to use
Sole Licensing Agreements and Contracts for Intellectual Property
A sole licensing agreement is a legal contract between parties that gives the licensee the exclusive right to make and sell the piece of intellectual property owned by the licensor. The main copy of the sole licensing agreement must be in writing. This right is authorized for a specific amount of time in exchange for some type of compensation. In contrast to the exclusive license, sole licensing agreements and contracts are exclusive for both the licensor and the licensee. There can be only one licensee.
In a sole licensing agreement, no license or rights contract can be granted to additional people or businesses. The sole license agreement is in effect an exclusive license that is exclusive to only one licensee. Only the licensor and the licensee are able to use the rights of the intellectual property.
Sole licensees have all legal rights to the intellectual property. In a sole licensing agreement, the licensees are considered owners of the intellectual property for the authorized duration of time. This gives licensees the same rights as the licensing owner. Rights under a licensing contract include the ability to sue infringers. If the licensor reserves the right to grant multiple licensing agreements, the sole license effectively becomes an exclusive license arrangement.
Example of a Sole License Agreement
Sole license contracts are an option where a patent owner and one manufacturer agree that the manufacturer will be the only one authorized to make and sell a product protected under intellectual property rights. For example, a person invents a new cold coffee brewing machine and is issued a patent. The person exclusively licenses the patent rights to one manufacturer to make and sell the new cold coffee brewing machines. This is frequently used to control the quality of the product(s) produced.
Basic Parts of a Sole License Contract
Sole licenses typically make for a great partnership between partners and business entities, as both parties have closely aligned incentives. A sole licensing agreement contains many parts but should include the following basic details:
- Subject matter
- Summary of usage
- Purpose of usage
- Contact details of all parties
- Any necessary definitions
- Processes and products already licensed
- Retained rights
- Authorized uses
- Any government contract details
- Trademark and copyright notices
- Plan of action if infringement occurs
- How information will be put to use
Non-Exclusive Licensing Agreements and Contracts
A non-exclusive licensing agreement is a legal contract between two parties where a licensee grants a licensor permission to make, use, and sell their intellectual property. Just like an exclusive licensing agreement, a non-exclusive licensing agreement is only valid for a specified amount of time.
Licensors of non-exclusive licensing agreements can grant as many contracts as they please to licensees. In fact, it is common and can be advised to hand out as many non-exclusive licensing agreements as possible. This licensing method may provide the most intellectual property success by maximizing the availability by having many producers.
If at any point the licensor decides to grant an exclusive or sole license contract, existing non-exclusive licensing agreements are terminated.
Non-exclusive licensees may have legal rights to the intellectual property. Licensees of the non-exclusive agreement may or may not be provided protection from any legal action taken. Non-exclusive contracts may or may not include legal protection. Potential lawsuits can range from infringement to abandonment. Lacking legal protection may be a disadvantage to non-exclusive licensing agreements. However, as with many such agreements, if the non-exclusive licensing contract contains a clause referring to legal protection, the licensee may be protected.
Example of a Non-Exclusive License Agreement
Non-exclusive license contracts are an option where a patent owner and many manufacturers agree to make and sell a product protected by intellectual property rights. For example, a person invents a new cold coffee brewing machine and is issued a patent. The person licenses the patent rights to any manufacturer that can make and sell the new cold coffee brewing machines to sell them in all countries of the world.
Basic Parts of a Non-Exclusive License Contract
A non-exclusive licensing agreement is made up of multiple parts. The following sections commonly found in such contracts include, but are not limited to:
- Any necessary definitions
- Grant of license
- Considerations
- Intellectual property details
- Confidentiality
- Representations and warranties
- Terms and terminations
- Release
