License agreement: Overview, definition, and example
What is a license agreement?
A license agreement is a legal contract between two parties in which one party (the licensor) grants permission to the other party (the licensee) to use a specific right, property, or intellectual property under agreed terms. The agreement typically outlines the scope, duration, territory, and other conditions under which the licensee is permitted to use the licensed property. License agreements are common in various industries, including technology, entertainment, and franchising, and they can involve intellectual property such as patents, trademarks, copyrights, or software.
For example, a software company may enter into a license agreement with a customer, allowing them to use its software under certain conditions, such as for a limited period or for specific purposes.
Why is a license agreement important?
License agreements are important because they protect the intellectual property (IP) of the licensor while allowing the licensee to use the licensed asset in a way that benefits both parties. For the licensor, the agreement ensures that the IP is used according to specified terms, preventing misuse or infringement. For the licensee, the agreement provides legal authorization to use the asset without violating the IP rights of the licensor. License agreements can also be a significant source of revenue for the licensor, especially in industries where licensing is common, such as in software, trademarks, or franchising.
For businesses, a well-drafted license agreement can provide clarity, reduce risks, and outline the rights and obligations of both parties, ensuring that the terms are clear and enforceable.
Understanding license agreements through an example
Imagine a popular mobile game developer, XYZ Studios, has created a game and decides to license it to a mobile app distributor, AppWorld, to be sold in various regions. The license agreement specifies that AppWorld can distribute the game in certain countries for a period of two years, with a revenue-sharing model. XYZ Studios retains ownership of the game, while AppWorld receives the rights to sell it within the agreed terms. This agreement protects XYZ Studios' IP while allowing AppWorld to profit from distributing the game.
In another example, a company that owns a patented technology may enter into a license agreement with another company to allow them to use the technology in their products for a specified duration. In exchange, the licensee pays royalties or licensing fees to the patent holder.
An example of a license agreement clause
Here’s how a license agreement clause might appear in a contract:
“The Licensor hereby grants the Licensee a non-exclusive, non-transferable license to use the Software for the term of this Agreement, in accordance with the terms and conditions set forth herein. The Licensee agrees to pay the Licensor a fee of [specified amount] for the license, and to adhere to the usage restrictions outlined in Schedule A.”
Conclusion
A license agreement is a crucial legal document that grants permission to use intellectual property or other rights, ensuring that both parties—licensor and licensee—understand their rights, responsibilities, and obligations. Whether related to software, trademarks, patents, or other assets, license agreements help protect intellectual property while enabling businesses to leverage valuable assets in exchange for compensation. A well-structured license agreement ensures both parties benefit from the arrangement and helps prevent future disputes.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.