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.

  • Non-Exclusive Licensing Agreement. The licensor may be licensing out the IP to multiple licensees. This type of agreement is usually only used when the licensor wants to fully exploit their work and make it available to as many potential users as possible.

  • Sole Licensing Agreement. Here, the licensor wants total control over their copyrighted material or patent being licensed. Licensors granting exclusive licenses usually do so to a single individual or company for a limited time period and within specific geographic boundaries. The licensor, in this case, retains all other rights not granted to the licensee.

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.

  • The licensor should retain rights over derivative works created by users under their original copyright licenses. Licensors may also offer sublicenses under their existing copyrights. These will further incentivize licensee investment into the licensed property.

  • Licensing agreements are typically used when intangible property (such as copyrights, trademarks, patents, or trade secrets) is licensed.

  • Licensing agreements are sometimes referred to as "terms and conditions" when the copyright owner uses an online licensing platform to offer licenses directly to users.

  • Licensing agreements should always include the following key terms: licensor, licensee, type of license (exclusive or non-exclusive), scope (geographic and time) of the license, compensation (if any), termination clause, and governing law.

  • Licensors should retain all rights not granted to the licensee under an exclusive or non-exclusive licensing agreement. Licensors may choose to reserve certain rights over their copyrighted material or patent only if they believe it is necessary for protection. Licenses can also be perpetual unless both parties agree otherwise.

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.

  • Control. Licensing agreements allow licensors to control how their copyrighted material or patent is used.

  • Access. Licensees can get access to copyrighted material or patents they would not be able to use otherwise.

  • Protection. Licensing agreements provide a level of protection for licensors in the event of copyright infringement by the licensee.

  • Time and Money-Saving. Licensing agreements are typically less expensive and time-consuming to negotiate than other types of contracts such as joint ventures or partnership agreements.

  • Long-lasting. Licensing agreements are usually perpetual unless otherwise agreed upon by both licensor and licensee.

  • Retain Rights. Licensing agreements allow the licensor to retain all rights not granted to the licensee under the agreement.

  • Simplifying. Licensing agreements simplify ownership, control, and payment of royalties in joint venture situations.

Examples of Licensing

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

  • Apple Licensing. Apple's licensing agreement for the iPhone and iPad is an example of a sole licensing agreement.

  • Google Licensing. Google's licensing agreement for Android is an example of a non-exclusive licensing agreement.

  • Ford Licensing. Ford's licensing agreement for its patents related to electric vehicles is an example of an exclusive licensing agreement.

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