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What is a licensee?

Updated: March 28, 2023
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A licensee is the party that receives a license. Licensees are granted limited rights or legal permission by a licensor in the form of a license. Licenses enable a person or company (licensee) to do something that would otherwise be legally prohibited – like using someone’s branding, selling their products, or using their songs.

The rights a license grants to a licensee are limited by the authority of the licensor. In other words, the licensee will only be able to do what the licensor has the authority to grant. For example, if a company wants to license the use of a copyrighted information, licensor will only be able to grant the use of the copyrighted information they own it.

A licensee can also be a company that receives a license from the licensor. The licensee must be sure to obtain all of the rights that it needs to operate its business. A licensee must also operate the business legally.

Some examples of licensees include individuals with a driver’s license, and individuals licensed to practice law or medicine. Licensees may enter into a contractual relationship with a licensor to receive a license. A licensee may not receive greater rights in a license than a licensor has the ability to bestow.

What Does Being a Licensee Mean?

In intellectual property law, a licensee is an entity that has limited rights or permissions to use a patent, trademark, or other intellectual property owned by the licensor. Intellectual property licensees and licensors usually enter into licensing agreements containing negotiated terms for use of the licensor’s property.

In exchange for the limited use of the intellectual property, often licensees agree to pay royalties to the licensor. An intellectual property license permits a licensee to use, make, and/or sell the licensed property.

For example, if a Company A wants to make a cell phone that has a feature which is patented by Apple, Company A will need to license the use of that feature from Apple, and typically pay some sort of royalties or fees to do so.

In tort law, a licensee is distinguished in the common law from invitees and trespassers, usually for the purpose of ascertaining the duty of care owed by a property owner to an individual on his land in premises liability. Generally, licensees are people who have received express or implied invitation to enter the owned property without a mutually beneficial commercial relationship to the owner.

Read here for more information relating what does it mean to be a licensee.

How Licensing Works

Licensing for Franchisees

When you buy a franchise, you automatically get a license to use the brand and operating methods of the business. A major benefit of having a franchise is that you get a license to use the marketing materials, brand name, business model and other aspects of the company to build your own independently owned business.

The franchise license is different than other types of licensed businesses. With a franchise, you’re given the freedom to duplicate the business model in your location. This license comes with stipulations that you will manage and operate the business under the franchisee’s rules as laid out in the franchise agreement .

If you license a business, you get the ability to sell a company’s products in your store. Buying the license to sell a franchise’s products will not grant you the rights to open the franchise itself. For example, the Disney Corporation sells franchises of the Disney Store, and it also sells the license to sell Disney products.

Here is an article to read more about how licensing works with franchisees.

Licensing for Brands

When a company believes there is a strong consumer acceptance for brand or products, it may choose to license its brand(s). Licensees expect that the license will provide them with sales growth. This sales growth may be in the form of growth within existing market or the opportunity to enter a new market.

The licensing contract forces the licensee to achieve certain sales targets and royalties; therefore, the goal of the licensee is to quickly meet their business objectives, thereby achieving their contract obligations. Royalties is the money paid to a licensor by the licensee for the right to use the licensed property.

Apart from benefits to licensors, licensees benefit as well. Licensees lease the rights to a brand for incorporation into their merchandise, but do not share ownership in it. Having access to major national and global brands, and the logos and trademarks associated with those brands, gives the licensee significant benefits.

When brand managers enter or extend into new product categories via licensing , they create an opportunity for a licensee to grow their company. Following is an example of the steps in the process for the licensed product:

  • Licensor chooses the product categories to be licensed
  • Licensor finds and negotiates a license with the best licensees
  • Licensees develop concepts, prototypes and final production samples and submit for approval
  • Licensor approves licensed products for sale
  • Licensees sell licensed products to authorized retailers

Here is an article for more information relating to licensing brands.

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Licensing for Real Estate

The requirements for real estate licensing vary widely from state to state. Some states require a certain level of education, and/or a certain number of credit hours in real estate coursework, before you can take the licensing exam.

Eligibility Requirements

There is no national standard real estate licensing checklist. Each state sets its own requirements. You may have to meet residency restrictions, requirements for pre-licensing coursework, and a lot of other paperwork. You may have to complete various training programs, go through a background check, be fingerprinted, and show proof of employment with a sponsor or managing broker/brokerage.

Other eligibility requirements that differ from state to state include:

  • Education requirements
  • Hours of coursework minimums
  • On-the-job training requirements
  • Exam pass rates
  • Proof of employment with a sponsor or managing broker/brokerage
  • Errors and omissions insurance

Pre-Licensing Education

All states require some type of real estate pre-licensing education. Once you complete your coursework, you will have to pass a state administered exam in order to continue. Some states require you to have a certain number of hours of on-the-job training in addition to your pre-licensing coursework.

Read here for more information on how licensing works for real estate.

Operating License

Operating licenses means all licenses, franchises, permits, consents, approvals, registrations, certificates and authorizations of all Governmental Authorities necessary or advisable to the conduct of the businesses of any of the Company parties.

Read here for more information relating to operating licenses.

Difference Between Licensor and Licensee

The licensee is the party that receives a license, while the licensor is the party that grants the license. For instance, when a bar owner gets a liquor license from the state where he operates his business, the owner is the licensee and the government that issued the license is the licensor.

Understanding Licensing Law

A licensing agreement allows one party (the licensee) to use and/or earn revenue from the property of the owner (the licensor). Licensing agreements generate revenues, called royalties, earned by a company for allowing its copyrighted or patented material to be used by another company.

Depending upon the situation, licensing laws will differ. Example, licensing laws for branding are different from licensing laws for Franchises. Though the laws may differ, the role of a licensee does not change.

Benefits of Licensing for a Licensee

Franchisees

A major benefit of having a franchise is that you get a license to use the marketing materials, brand name, business model and other aspects of the company to build your own independently owned business. With a franchise, you’re given the freedom to duplicate the business model in your location.

Read more about benefits of franchisee licensees here .

Brands

Licensees lease the rights to a brand for incorporation into their merchandise, but do not share ownership in it. Having access to major national and global brands, and the logos and trademarks associated with those brands, gives the licensee significant benefits.

Read here for more information relating to the benefits of licensees for brands.

Intellectual Property

Some advantages/benefits of licensing include:

  • Income without overhead
  • Potentially better marketing
  • Enter foreign markets more easily
  • Diffuse conflicts

Read here for more information relating to the benefits of licensees of intellectual property.

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