What is a Licensing Agreement?

Mary McMahon

A licensing agreement is a legal agreement that grants someone permission to use something trademarked, copyrighted, or otherwise protected in specific circumstances. Licensing agreements are essentially permission slips that describe authorized use of the subject of the license. They are used in a wide variety of settings and many people have encountered such documents.

Man climbing a rope
Man climbing a rope

A classic example of a licensing agreement is a software license. When people install software on their computers, they must review a legal document describing how the software can be used. The agreement may specify that it is limited to a single computer, for example, or it may indicate that the source code is open and people are allowed to distribute and modify the software, should they so desire. Software licensing agreements are used to create a framework for legal use of intellectual property, authorizing people to use the property and assigning some rights to users while retaining the copyright for the creator.

Licensing agreements are also used to allow companies to manufacture copyrighted products by arrangement, to take advantage of proprietary technology, and for a wide variety of other activities. These agreements are customized to the application and can have restrictions on how things are used, where they are used, and who uses them. A pharmaceutical company might, for example, offer a licensing agreement to allow a company in the developing world to make a patented drug and distribute it at low cost with the understanding that manufacturing and distribution will be kept in one country so that the company with the license does not start competing with the company that holds the patent.

In exchange for a licensing agreement, the person or company that holds the rights to the intellectual property must be provided with some form of valuable consideration. Most commonly, this takes the form of money paid in order to access the rights to use the intellectual property. Consideration can also take the form of exchanges or other agreements, depending on the terms of the license.

Each license is slightly different. Attorneys prefer to draft original licenses for new agreements, although templates can sometimes be used to create a checklist of items that should be in a licensing agreement. Special clauses may be needed for particular applications and there may be certain considerations with a particular piece of intellectual property that must be addressed. There are references individuals can use to draft their own licensing agreements and a lawyer can review such documents to determine whether or not they will meet the need.

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