ContractsCounsel Logo

What Is Licensing?

Updated: November 21, 2023
Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 9,835 reviews
No Upfront Payment Required, Pay Only If You Hire.
Home Blog What Is Licensing?

Jump to Section

Intellectual property (IP) is likely a business’s most valuable asset. However, they can stand to earn more money by licensing those rights to other companies. If you’re considering licensing IP assets to other companies, protect your business by learning about what they involve.

Let’s get started by looking at what licensing means first:

What Does Licensing Mean?

Licensing is a legal agreement between a licensor and licensee. The licensor grants intellectual property rights to the licensee for profit. IP assets may include patents, trademarks, copyrights, and designs. They are exchanged for financial consideration and used in business relationships. Licensors can earn profits through licensing agreements, depending on the agreement and how profits are shared between the licensor and licensee.

Here is an article that also explains what licensing means.

How Licensing Works

Licensing grants another company the right to use intellectual property owned by the licensor, such as patents, trademarks, copyrights, or designs. Companies with limited capital are usually good candidates for making licenses available. Licensing gives them the chance to scale their businesses while supporting a profitable return.

For example, beverage companies grant licensing rights to restaurants. These rights allow the restaurant to promote the vendor’s products and use their logo in marketing materials. They can also make money from beverage sales.

Meet some lawyers on our platform

Brian W.

4 projects on CC
View Profile

Forest H.

184 projects on CC
View Profile

James H.

10 projects on CC
View Profile

Chris D.

9 projects on CC
View Profile

Important Terms Related to Licensing

Exclusivity

The licensee receives the right to make and sell the product within a specific geographic area. Additionally, the licensor promises not to sell the relevant product within the given limitations. Therefore, this section of the agreement usually has a term and geographic stipulations attached to it.

Subsidiaries

The licensee may not receive licensing rights to pass them onto a subsidiary or affiliate. However, these terms are negotiable.

For example, suppose you authorize trademark licensing on your composed music. In that case, you can restrict the licensee from granting permission for use to third parties or subsidiaries.

Consideration

Licensing must include some form of consideration in exchange for rights. Consideration typically comes in the form of royalty payments, fees, and other expenses. Licensors can tie this exchange into licensee performance to earn even more significant revenues.

Agreements

The licensor’s most proactive way to protect their legal rights is by requiring licensees to sign a licensing agreement. Licensing agreements are legally binding documents between two parties. They define the scope and depth of the relationship while establishing legal terms and conditions of these rights. Licensees may try to negotiate a non-competition agreement with licensors as well.

Types of Licensing

Businesses can break down licensing types according to their industry, size, and relationship to the licensee. As the licensing relationship increases in complexity, so do the associated agreements. Ensure you have the suitable types of licensing agreements in place but familiarize yourself with them first.

Here are the three licensing types you should know:

Type 1. Patent Licensing

Patents are a form of innovation and highly prized by their owners. However, a patent is worthless without the means for production and distribution. Licensing allows third parties to take advantage of the patent rights while the licensor earns royalty payments.

Type 2: Trademark Licensing

Trademark licenses authorize licensees to use a company’s creative works, including brand names, logos, slogans, and other design elements. These rights allow the licensee to promote the product or service within the given constraints. Contracts should also include acknowledging that a trademark application is on file with the US Patent and Trademark Office (USPTO), however it is not a requirement for a trademark license agreement.

Type 3. Trade Secret Licensing

Trade secrets give a company its edge. But, more importantly, they are not registered with governments. Trade secret licensing creates the protections necessary to divulge trade secrets to licensees while protecting their rights if a confidentiality breach occurs. You should also include a nondisclosure agreement (NDA) into your trade secret licensing contracts.


Get Free Bids to Compare

Leverage our network of lawyers, request free bids, and find the right lawyer for the job.

Get Bids Now

Examples of Licensing

If you still have questions about licensing, you aren’t alone; they’re complicated deals! It’s easier to understand how licensing agreements work in practice through use cases of other companies.

The examples below detail licensing in business, marketing, copyrights, and computers:

What Is Licensing in Business?

Licensing in business refers to general licensing rights granted to a licensee. These rights may include intellectual property, trade secrets, and copyrights. The licensor earns a royalty rate based on units sold, while the licensee earns profits through direct sales to consumers.

An example of business licensing is found in manufacturing. Let’s say a company manufactures a patented component that can enhance another company’s products. Since the second company cannot legally use the patented product, they could approach the manufacturer about obtaining business licensing rights.

What Is Licensing in Marketing?

Licensing in marketing affords companies the right to use specific images, slogans, logos, and other trade dress elements. A marketing licensing agreement defines the terms and conditions regarding use as well as compensation rights.

One example is seen in book publishers who use licensing agreements for book cover art. Generally, an artist creates an image for the book cover and exchanges their rights to the image for compensation through licensing. They can also cap the agreement or request additional tiered payments for units sold.

What Is Licensing in Copyright?

Copyrights give the copyright owner the exclusive right to reproduce, distribute, display, and perform their copyrighted works. A copyright license grants the licensee the right to use the copyrighted works in a manner specified in the license agreement. These copyrighted works could include music, artwork, and videos. You can also use copyright licenses for distributorships.

For example, suppose you wrote a song that companies want to use commercially. In that case, a copyright license will help protect your rights. You can grant the authorization of your copyright works while placing limitations on how the licensee may use them.

What Is Licensing in Computers?

Licensing in computers can refer to software and hardware licenses. Software licenses grant companies the use of another company’s programs and applications. Hardware licenses are similar except that the licensee can use the licensor’s physical parts and resell them under the same or different name.

As an example, computer processors are not usually made by a computer manufacturer. Instead, they license with another specialized company, such as NVIDIA or Intel, to create these processors. The processor manufacturer, in this situation, is the licensor, and the computer manufacturer is the licensee.

Licensing vs. Franchising

While there may be specific regulations and rules that apply to franchising, licensing agreements are also governed by contract law and are subject to the same legal principles as franchising law.

Difference 1: Control

Another difference is that licensing offers more flexibility to both parties. For example, licensees have the freedom to operate as separate entities without managerial control. On the other hand, franchises give the franchisor exclusive control over the franchisee’s operations.

Difference 2: Regulations

The Franchise Rule governs relationships between franchisors and franchisees. The federal government mandates and enforces these rules. It ensures that franchisees have the information they need to make an informed decision. Franchisors must provide the franchisee with 23 different types of information about the company.

Licensing only requires the main elements of a contract for validity and enforceability. These rules are usually subject to local, county, and state laws.

Here’s an article that also explains licensing vs. franchising.

Get Legal Help with Licensing

Protect your intellectual property rights during the licensing process by drafting a solid licensing agreement. Licensing agreement lawyers have the experience and insight businesses want to make strategic moves through contracts and contract management. Start by scheduling an initial meeting to discuss your objectives and plans.

Need help with a Licensing Agreement?

Create a free project posting

Meet some of our Lawyers

Daniel R. on ContractsCounsel
View Daniel
5.0 (52)
Member Since:
January 2, 2023

Daniel R.

Business and Real Estate Atttorney
Free Consultation
New York
28 Yrs Experience
Licensed in NY
New York Law School

NY Admitted Lawyer 20+ years of experience. Focused on Startups , Entrepreneurs, Entertainers, Producers, Athletes and SMB Companies. I have been a part of numerous startups as Founder, CEO, General Counsel and Deal Executive. I have been through the full life cycle from boot strap to seed investors to large funds-public companies to successful exit. Let me use my experiences help you as you grow your business through these various stages. We saw a market for an on-line platform dedicated to Virtual General Counsel Services to Start Ups and Private Companies.

Scott S. on ContractsCounsel
View Scott
5.0 (17)
Member Since:
July 28, 2020

Scott S.

Principal
Free Consultation
New York, NY
43 Yrs Experience
Licensed in NY
New York University School of Law

I have over 25 years' experience representing individual and company clients, large and small, in transactions such as mergers and acquisitions, private offerings of securities, commercial loans and commercial endeavors (supply contracts, manufacturing agreements, joint ventures, intellectual property licenses, etc.). My particular specialty is in complex and novel drafting.

Daehoon P. on ContractsCounsel
View Daehoon
4.8 (111)
Member Since:
November 26, 2021

Daehoon P.

Corporate Lawyer
Free Consultation
New York, NY
9 Yrs Experience
Licensed in NY
American University Washington College of Law

Advised startups and established corporations on a wide range of commercial and corporate matters, including VC funding, technology law, and M&A. Commercial and Corporate Matters • Advised companies on commercial and corporate matters and drafted corporate documents and commercial agreements—including but not limited to —Convertible Note, SAFE, Promissory Note, Terms and Conditions, SaaS Agreement, Employment Agreement, Contractor Agreement, Joint Venture Agreement, Stock Purchase Agreement, Asset Purchase Agreement, Shareholders Agreement, Partnership Agreement, Franchise Agreement, License Agreement, and Financing Agreement. • Drafted and revised internal regulations of joint venture companies (board of directors, employment, office organization, discretional duty, internal control, accounting, fund management, etc.) • Advised JVs on corporate structuring and other legal matters • Advised startups on VC funding Employment Matters • Drafted a wide range of employment agreements, including dental associate agreements, physician employment agreements, startup employment agreements, and executive employment agreements. • Advised clients on complex employment law matters and drafted employment agreements, dispute settlement agreements, and severance agreements. General Counsel • As outside general counsel, I advised startups on ICOs, securities law, business licenses, regulatory compliance, and other commercial and corporate matters. • Drafted or analyzed coin or token sale agreements for global ICOs. • Assisted clients with corporate formations, including filing incorporation documents and foreign corporation registrations, drafting operating and partnership agreements, and creating articles of incorporation and bylaws. Dispute Resolution • Conducted legal research, and document review, and drafted pleadings, motions, and other trial documents. • Advised the client on strategic approaches to discovery proceedings and settlement negotiation. • Advised clients on employment dispute settlements.

Vicki P. on ContractsCounsel
View Vicki
5.0 (3)
Member Since:
June 30, 2023

Vicki P.

Attorney
Free Consultation
Danville, Pennsylvania
25 Yrs Experience
Licensed in PA, WI
Regent University School of Law

Vicki graduated from Regent University School of Law in Virginia Beach, Virginia in 1996. She is a licensed attorney. She has been admitted to Wisconsin since 1998 and Pennsylvania since 1999.

Mark M. on ContractsCounsel
View Mark
Member Since:
June 30, 2023

Mark M.

Senior Attorney
Free Consultation
Reston VA
36 Yrs Experience
Licensed in DC
Georgetown University Law Center

I have 20-plus years of experience as a corporate general counsel, for public and private corporations, domestic and international. I have acted as corporate secretary for a publicly-held corporation and have substantial experience in corporate finance, M&A, corporate governance, incorporations, corporate maintenance, complex transactions, corporate termination and restructuring, as well as numerous aspects of regulatory and financial due diligence. In my various corporate roles, I have routinely drafted complex corporate contracts and deal-related documents such as stock purchase agreements, option and warrant agreements, MSAs, SOWs, term sheets, joint venture agreements, tender agreements purchase and sale agreements, technology licensing agreements, vendor agreements, service agreements, IP and technology security agreements, NDAs, etc. and have managed from both a legal and business perspective many projects in the financial, technology, energy and venture capital fields.

Daniel K. on ContractsCounsel
View Daniel
Member Since:
August 9, 2023

Daniel K.

Founder and Managing Partner
Free Consultation
Chicago
8 Yrs Experience
Licensed in IL, NJ, PA
Drexel University Thomas R. Kline School of Law.

My practice focuses on business and commercial litigation. I have worked with companies of all sizes from sole member LLCs to those in the Fortune 500. I've advised clients on mergers, equity issuances, commercial transactions, joint ventures, employment issues, and non-competition. I've also drafted and negotiated the underlying agreements for these transactions and more.

Thomas B. on ContractsCounsel
View Thomas
Member Since:
July 2, 2023

Thomas B.

Attorney
Free Consultation
Indianapolis
34 Yrs Experience
Licensed in IN
Indiana University

Accomplished Attorney with 33 years of experience assisting clients with their legal needs, including reviewing and drafting of various contracts and agreements.

Find the best lawyer for your project

Browse Lawyers Now

Need help with a Licensing Agreement?

Create a free project posting
CONTRACT LAWYERS BY TOP CITIES
See All Licensing Lawyers
other helpful articles

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

View Trustpilot Review

Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.

View Trustpilot Review

I never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.

View Trustpilot Review

I got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.

View Trustpilot Review

Need help with a Licensing Agreement?

Create a free project posting

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call

Find lawyers and attorneys by city