Licensing Agreements: Everything You Need to Know

When an individual or company creates a process, product, or work of art, they can legally declare it their intellectual property (or IP). By doing so, they are making themselves the only party legally allowed to use this IP for business purposes.

Often, however, in order for IP holders to effectively leverage their new IPs, they’ll need to work with other companies who don’t share the rights. To do that without losing executive rights to their IP, they’ll have to create a licensing agreement. 

Licensing agreements are the legal documents that define and manage agreements between licensor IP holders and the companies that want to use the IP. This is everything you should know about these important agreements.

This content is for general educational purposes only and is not intended, and should not be considered, legal advice.

What are licensing agreements?

Licensing agreements are legal contracts in which a property owner (the licensor) gives another party (the licensee) permission to use IP owned by the licensor, such as their brand name, trademark, patented technology, or ability to produce and sell goods.

These documents specify the terms of the agreement between the licensor and licensee in detail. They include information on the agreement including:

• How, when, and where the licensee can use the property

• How long they’re allowed to use it

• How they will compensate the licensor

What are some different types of licensing agreements and which are the most common?

Licensing agreements primarily differ based on the type of IP they’re issuing a license for. Some of the most common types include:

Patent licensing

A patent grants its owner the exclusive right to use and profit from a technology they invented. Licensors typically use patent licensing when they own the patent to an invention that’s a prerequisite to creating products they don’t have the resources to manufacture or distribute themselves. 

For example, pharmaceutical companies frequently license their medication patents to companies that can distribute and sell these medications at scale.

Trademark licensing

A trademark is a legal signifier that distinguishes the products of one company from similar products made by a different company. All brands are examples of trademarks. A trademark owner can use a trademark licensing agreement to give a licensor permission to use their trademark on their own products.

For example, a major brand such as Nike could create a trademark licensing agreement with a third-party clothing company that would allow that clothing company to sell shirts with the Nike logo on them.

Copyright licensing

A copyright is a legal signifier that defines and protects a specific and distinctive creative work. A copyright owner has the exclusive right to reproduce, market, and profit from the copyrighted work. This owner can create a copyright licensing agreement to allow a licensor to use and profit from their copyrighted material.

For example, the Disney Corporation possesses the copyright to the character Mickey Mouse. If other creators wanted to use Mickey Mouse in their own work and profit from that work, they would have to secure a copyright licensing agreement with Disney first.

Trade secret licensing

Trade secrets are information that would be detrimental to a businesses’ ability to compete in their marketplace if it was publicly disclosed.

Unlike copyrights or trademarks, trade secrets are not legally protected. Companies with trade secrets can use a trade secret licensing agreement that includes a Non Disclosure Agreement (NDA) to create legal ramifications for a party that shares those secrets, but only if they don’t disclose the secrets to that party before the agreement is signed.

What should be included in a licensing agreement?

Your licensing agreements should include the following information: 

• Identifying particulars: The name and contact information of both the licensor and licensee parties.

• Definition of IP: A definition of the intellectual property to be licensed, in as much detail as possible.

• Terms of licensing: How the licensee will and will not be allowed to use the relevant IP.

• Licensor rights retention: What rights to the IP the licensor will retain even after the agreement is signed and the licensee gains the rights to use the IP.

• Payment and other financial terms: How the licensee will pay the licensor for the rights to use their IP and the schedule on which they will make these payments.

• Exclusivity rights: Specification of where and when a licensor can license and profit from their IP during this agreement.

• Terms of agreement: How long the licensing agreement will last and how and when it will end.

• Diligence requirements: A clause outlining the actions a licensee will need to take with the IP in order to retain their right to license it per the agreement.

• Quality assurance: This clause details the characteristics and/or elements of the IP’s brand that the licensee must preserve to make use of the copyright or trademark. It may also outline quality assurance processes the licensor will take to ensure that the licensee’s use of their copyright IP lives up to these expectations.

• Non-disclosure clauses: Information on what the licensee is and is not allowed to disclose about the licensed IP to outside parties, and the consequences for breaching NDA.

• Termination clauses: Information on any circumstances in which the licensor could terminate the licensing agreement prematurely.

• Dispute resolution terms: Clarifications on how any disputes that arise between licensor and licensee during the period of licensing will be resolved. 

Generate, track, and share your licensing agreements 

Keeping an accurate record of your licensing agreements is extremely important for any licensor or licensee. It’s important to have an easy way to reference these documents to ensure you’re using your licenses correctly and provide solid evidence of compliance in case of dispute. 

With DocuSign IAM, creating and managing your agreements couldn’t be easier. The tool gives your organization a single source of truth for accessing up-to-date agreements from any connected device.

If you’d like to see how easy Docusign can make managing your licensing agreements, you can try Docusign for free for 30 days.

This content is for general educational purposes only and is not intended, and should not be considered, legal advice. Laws frequently change and this information may not be current or accurate. Docusign disclaims all warranties of any kind with respect to this material including merchantability, fitness for a particular purpose, or accuracy. You should consult with a licensed attorney in your area for legal advice.