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What is a Licence Agreement?

Some people or businesses who have created intellectual property (IP) want to allow another business or person to use the IP. Licence agreements allow this to happen.

Licence agreements are agreements entered into between the owner of the IP (licensor) and the person or business who wants to be able to use the IP (licensee). The owner of the IP retains their ownership; they aren’t selling it to the licensee, they are just giving that person the right to use the IP (usually for a set period of time and upon payment of an amount).

When should I use a Licence Agreement?

Licence agreements are useful for situations where an IP owner wants to continue to own their intellectual property, when they want to continue to make improvements to it and when they want to allow multiple people or businesses to use it. Software is an example of the type of IP that is commonly licenced with a licence agreement. Have you ever bought software online? You would have electronically entered a licence agreement before you downloaded it. Think Microsoft and its Office products… to be able to use Microsoft’s Word software product you enter into a licence agreement with Microsoft that allows you to use the software (generally for payment of a fee).

What clauses should be in a Licence Agreement?

Some of the clauses that should be in a licence agreement are:

  • The duration of the licence period – Because you’re not selling off the IP forever, but rather just giving someone the right to use your IP, the licence agreement needs to state how long the licence period is for. Some licence agreements are perpetual, which means that the licence term is ongoing unless something happens to end the agreement. Having a licence for a limited period allows the licence terms to be re-negotiated at the end of the term, which can be good for the licensor.
  • Exclusivity or non-exclusivity – If you’re the licensor, do you want to be able to licence the IP to multiple parties? Or are you happy to licence the IP exclusively to one party? If you want to be able to licence your IP to multiple parties then the licence agreement should be non-exclusive.
  • Revocable or irrevocable – Revocable licence agreements can be terminated by the licensor, irrevocable agreements cannot. However irrevocable agreements can still be terminated in certain circumstances, such as if there is a breach of the agreement. What constitutes a breach of the agreement should be stipulated in the agreement itself, so that there is no doubt as to when a termination can occur.
  • Licence fee – How much is the licensee paying for the privilege of using your IP? When is the fee payable? Are there additional fees for things like maintenance and support? Consider whether you want a termination fee to apply if the licence is ended early.
  • IP ownership of modifications – Will the licensee be making modifications to your IP or using it as the basis for creating their own product? If so, it is a good idea to consider who will own the new IP that is created using the original IP described in the licence agreement.
  • Sub-licensing – Does the licensee need to licence the IP to other parties? If so, the licence agreement should include a term about sub-licensing. Generally sub-licensing is prohibited in most licence agreements (in order to protect the licensor – i.e. the party that owns the IP and is giving the licence).
  • Terms of use – Should the licensee be limited by how or where they can use the IP for the term of the licence? Most government contracts grant the government very broad rights to use IP, but those rights are still negotiable.
  • Termination – Under what circumstances can the licensor and licensee end the agreement? What will happen when the agreement is terminated? How much notice should be given?

There is plenty to think about in any licence agreement, we know that from experience as we have look at hundreds of them!

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