Licencing is a way of ‘renting out’ intellectual property, like trademarks and copyrights, by licencing under a freestanding agreement or part of another contract.
Understanding Licensing Agreements can be crucial to your success as a business owner. You may be interested in becoming a licensor, which means you own the intellectual property and permit others to use it, or a licensee, which means you seek permission to use someone else's intellectual property.
In this article, we will explore how Licensing Agreements work and how they can benefit your business. By the end of this article, you’ll have a better understanding of licensing and what you need to know to engage in this important aspect of business.
What is licencing?
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, trade secret or trademark. It’s important that licencing is done correctly, so your business is protected.
Aspects of a business which might be licenced are:
- Intellectual property
To learn more about Software License Agreements, you can read our article ‘Business Software and IT Agreements, what to consider’.
Your business must have a clear licencing strategy to protect your brand assets. Licencing can be a significant source of revenue for companies 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 should be included in a Licensing Agreement?
Licencing Agreements contain details on which type of agreement is in use. Also, the terms of usage and how the licensor should be compensated for granting the licensee right to use the assets in question. Licencing Agreements also detail how fees are calculated and how long they remain in place.
There are certain terms 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 an NDA)
- The deal's time frame, including the contract's length 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)
- Payment schemes are available for licensing agreements (licenses can be paid in one flat fee, as a percentage of sales such as royalty payments which can be based on gross revenue, net revenue/profits or a periodic fee)
- A clear dispute resolution clause details the policies and procedures that will be followed should a dispute develop (however, formal litigation should always be the last resort)
How to negotiate a Licensing Agreement?
As with any contract, the terms of a Licence Agreement can be negotiated. Therefore, business owners, entrepreneurs, and inventors should hone their negotiating skills to ensure they can secure the best deal as a licensee or licensor.
The top negotiating tips include:
1. Prepare, prepare, and prepare some more – you need to understand the other party’s motivations, pressures and needs. Gather information on matters such as:
- The timescales the other party must meet
- How much pressure negotiators are under to meet the overall licencing goals of the company
- The other party’s financial position
All these factors can be used to secure a more favourable licencing agreement.
2. Ensure that everyone on the negotiating team is singing from the same sheet
3. Agree on your walk-away points in advance of negotiation meetings – when negotiating with large companies, it’s easier for them to reject a licencing opportunity than pursue it. Therefore, do not risk attempting to call their bluff – if you walk away, you probably have to accept your chance of obtaining a licence has disappeared.
4. Get legal advice early – it’s much easier for our lawyers to draft licencing documents if we have attended negotiation meetings. In addition, they can provide an authoritative presence and keep your negotiating team on track, especially in situations where talks run on for many hours or become tense.
Are License Agreements enforceable?
Licence agreements are legal contracts and, as such, are enforceable by contract law.
If a licensee breaches the terms and conditions of your Licence Agreement, you can take court action, including applying for an injunction and/or payment of damages. An example of a contract breach could be providing login details to non-authorised people.
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 involved.
This agreement details the rights of 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’s brand identity, product, trademark patented, copyright and/or other intellectual property rights.
Licencing can also be an effective 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.
Get legal assistance from LawBite
If you're a business owner looking to protect your intellectual property and maximize your revenue, then LawBite's legal services can help. Our team of expert lawyers understand the complexities of Licensing Agreements and can provide you with the guidance you need to create a clear licensing strategy that protects your brands assets.
We can also help you negotiate licensing deals that work in your favor, and we can enforce your Licensing Agreement in court if needed.