• Intellectual property
  • August 06, 2021

Licencing - How does it work in business

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Licencing is a way of ‘renting out’ intellectual property like trademarks and copyrights, by licencing under a freestanding agreement or part of another contract. As a business owner, you may be interested in becoming a licensor or licensee, and this article will outline the ways licensing can relate to your business and what you need to know. 

What is Licencing?

The meaning of licencing is a legal agreement between two parties, where the owner of the assets (the licensor) grants permission to another party (the licensee) to use their brand, patent or trademark. It is important that licencing is done correctly so your business is protected. 

Aspects of a business which might be licenced are logos, intellectual property, software, music and technology. To learn more about software license agreements, you can read our article ‘Business Software and IT Agreements, what to consider’.  

It is crucial that your business has a clear licencing strategy, so your brand assets are protected. Licencing can be a significant source of revenue for businesses through royalties or other fee structures. 

However, licencing has risks which you should be aware of. These include the licensor losing some or all control of their intellectual property and what it is used for. 

What to look for in a Licencing Agreement

Licencing agreements contain details on which type of agreement is in use, the terms of usage and how the licensor should be compensated for granting the licensee right to use the assets in question. Licencing agreements detail how fees are calculated and for how long they remain in place.

There are certain things a business should look for in a licencing agreement to ensure they are best protected. These include:

  • Attribution, which lets the licensee distribute, adapt and build upon the licensor’s work. The licensor will be credited for the original material.
  • All non-public information disclosed by one party (the “Disclosing Party”) to the other party (the “Receiving Party”) should be considered confidential. A licensee may be required to keep what’s licensed confidential and this will be combined with a non-disclosure agreement. 
  • The time frame of the deal, including the length of the contract and any market release dates for products licenced to outside manufacturers. Licenses can last forever or they can be for a specific time frame. 
  • Any elements surrounding the termination of the licencing such as conditions and process for termination.
  • There are many payment schemes available for licensing agreements. Licenses can be paid in one flat-fee, as a percentage of sales (royalties which can be based on gross revenue, net revenue or profits) or a periodic fee.  

FAQs

LawBite have put together a FAQs section on all the most commonly asked questions about licencing. 

  • What do I need to know about licencing?

Some UK businesses need a licence to operate legally. During licencing, an agreement should be formed between the two parties. This agreement details the rights for each party and how any money flows.

  • What is licencing in business?

In business, licencing might refer to a licensee wanting to use a business’ brand identity, product, patent, trademark, copyright and/or other intellectual property rights. Licencing can also be a good way to generate income fast and grow a business, as the licensee can utilise the infrastructure/assets of an existing company, in exchange for an amount of revenue. 

You can get legal assistance from LawBite 

LawBite’s mission is to democratise how SMEs get the expert law they need - easier to access, clearer to understand and much more affordable. We connect you with the best lawyers to give you top-class legal advice. LawBite offers legal advice from our experts regarding licencing and what you need to know about licencing agreements. We use our experience to outline what you should consider before getting involved in licencing and the risks and benefits for both licensors and licensees. 

We hope this article has been helpful in everything you need to know about licencing in regards to your business.

If you have any further questions about LawBite’s legal advice about licencing, click here to learn more. 

You can also read more about LawBite in our about us section, check out our FAQs or make an enquiry with us. LawBite has various subscription options and also offers a free no-commit 15-minute initial consultation. 

Check out our article ‘Business Software and IT Agreements’ to learn more about software license agreements and service level agreements for software. 

Additional useful information

How to register a business name
How To Protect Your Business Ideas
How to Register a Trademark in Europe
How to copyright your business logo
Trademark Disputes: What You Need To Know
A Simple Guide To Applying For A Patent

In closing

Nothing in this article constitutes legal advice on which you should rely. The article is provided for general information purposes only. Professional legal advice should always be sought before taking any action relating to or relying on the content of this article. Our Platform Terms of Use apply to this article.



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