A licensing agreement provides another entity the right to use, sell, distribute, or profit from your intellectual property. Patents, trademarks, copyrights and other forms of IP can potentially drive profit for the owner with a carefully crafted license.

Consider these factors to develop a legally binding license agreement that protects your valuable IP while appealing to potential licensees.

Parameters of an agreement

A license agreement should fully disclose the scope and context of the invention, method, information or IP covered by the agreement. You may wish to limit the allowable uses by the licensee. The contract should clearly document:

  • Whether the license agreement is exclusive or whether other entities can also use the IP in question
  • The time period that applies to the license
  • The region where the licensee can use, distribute, sell, or profit from the IP in question
  • Whether the license applies to reuse or reissue of the asset in question

Payment amount and structure

You should indicate whether the licensee will pay a percentage of profits or a lump sum in exchange for the license. In either case, indicate when you should receive payments. State whether the license agreement will expire if the licensee fails to achieve specific performance goals, and indicate what those goals entail.

Competition considerations

You may want to limit the ability of the licensee to introduce a competing method or product within a certain amount of time after the license ends. The license agreement must also assign the duty of defending the trademark, patent or copyright during the license period. Because this can be an expensive prospect, you may want to outline specific requirements for licensees in this regard.

The license agreement should also detail any prohibitions against altering, coassigning, improving, or changing the IP covered by the license. For example, if your company developed a software program, can the licensee customize the program to meet its own needs within the bounds of the license agreement?

Careful consideration of these issues can help you preserve both the value of your IP and your relationship with licensees.