When it comes to using the term “license”, it’s necessary to figure out where and how you want to use it. With two meanings, it enables users to apply it with respect to the purpose.

You could either be using it as a common term like that of a driver’s license or in terms of commerce and business.

However, a license refers to a permit given to use or own something by an authority. For this, it’s essential to have a legal license agreement template that explains each and everything in detail to avoid confusion in the future.

What Is a License Agreement?

A license agreement or licensing agreement is known as a deal between the owner/creator (licensor) of a trademark, patent or brand and a person (licensee) who is willing to get those trademarked or patented goods/ services in possession.

The license gives permission to that person and makes him/her liable to honor the guidelines as mentioned by the licensor. One of the important rules in the license agreement is to make financial arrangements against using the license.

Normally, two types of assets can be licensed:

  • Intellectual property: copyrights and trademarks
  • Technology: like patents to use services/products or computer apps/software

Licensing agreement is one of the ideal ways for a company, who has a great idea of a product but cannot manufacture it, to let someone else do it for them.

In other words, this type of agreement has a great potential to provide return on investment (ROI) with higher chances of getting successful.

How a License Agreement Works?

As soon as a licensing agreement is created, it imposes obligations on the licensor to provide intellectual property rights to the licensee either by brand name, product creation knowledge or licensor’s technology.

In exchange, the licensee is liable to pay an upfront or royalty fee so as to ensure the authority to use it by the licensor. Here, the fact is that the royalty fee is the ongoing payment to the licensor against the use of his/her intellectual property.

Royalties can be paid in a number of ways, including holding the copyrights, giving share in the annual revenues on sales and selling of copyrights in exchange for a stream of revenue.

Who Needs a License Agreement?

In the most basic form, a license agreement is between two parties - one is willing to sell the secrets of their products/services along with the right to use them, while the other is interested to utilize them for good.

But, the thing that makes each agreement different from the other is its nature of use. Even, the license agreement templates are different based on the extent of the use of products/services.

So, it’s necessary to figure out the nature of the agreement before figuring out which licensing agreements template would work the best.

  • Exclusive License: This license agreement is created when it is only intended for the intellectual property. Licensor cedes the rights while licensee has to bear more cost.
  • Non-exclusive License: There will be more than one licensee to use the intellectual property, thereby making it necessary to follow a different licensing agreement template.
  • Sole license: One Licensee has all the rights of the intellectual property due to which, it costs more as compared to non-exclusive one but, if of course, cheaper than exclusive license.

A bad or poorly performing licensee can result in a product or service that could have developed a good cash flow being useless while other competing products come to dominate the field.

Further, most licensees need guidance and assistance from the licensor, so inevitably more than “cashing the checks” is involved. Many inventors have a dream of licensing their product to some multinational that will simply pay a great deal of money over time.

The average license involves two relatively small businesses who have to work together to make the process successful.

What Are Included in a License Agreement?

When it comes to the elements, you can take a look at any license agreement sample to get to know about the following in a better way:

  • Length: There must be a start and end date along with renewal rules.
  • Dispute resolution:Dictates whether the parties solve their disagreement in arbitration or in a court.
  • Exclusivity: Only one licensee has the right to use innovations whereas, it depends upon the licensor if he/she wants to earn with an exclusive license or a non-exclusive one.
  • Minimum sales guidelines: Look at the licensing agreement sample to see how a licensee should meet sales goals as prescribed by the licensor.
  • Oversight: Licensor can protect his/her innovations, brands and trademarks.
  • Quality control: The licensee must prove quality standards of the products/services as well as the premises.
  • Payment: It is an important part of the licensing agreement template that should be clearly mentioned along with the variable or fixed dates. Payments depend upon the sales criteria.
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