Licensing Agreement

Licensing Agreement?

A licensing agreement is a contract between two parties (the licensor and licensee) in which the licensor grants the licensee the right to use the brand name, trademark, patented technology, or ability to produce and sell goods owned by the licensor. In other words, a licensing agreement grants the licensee the ability to use intellectual property owned by the licensor. Licensing agreements are commonly used by the licensor to commercialize their intellectual property.

Quick Summary:

• A licensing agreement is a contract between a licensor and licensee in which the licensee gains access to the licensor’s intellectual property.
• The party providing the intellectual property is called the licensor while the party receiving the intellectual property is called the licensee.
• In a licensing agreement, the licensee typically pays an upfront fee in conjunction with a royalty fee.

Understanding a Licensing Agreement

In a typical licensing agreement, the licensor agrees to provide the licensee with intellectual property rights such as the licensor’s technology, brand name, or product creation know-how. In exchange for the licensor’s intellectual property, the licensee typically plays an upfront fee and/or a royalty fee to the licensor. A royalty fee is an ongoing fee paid for the right of use of the licensor’s intellectual property.

It is important to remember that:

• The party that is providing intellectual property rights to another party is called the licensor
• The party that is receiving intellectual property rights from another party is called the licensee

Advantages of Licensing

The advantages of licensing can be viewed from two perspectives: licensor and licensee.

Advantages to the licensor include:

1. The licensor being able to utilize the licensee’s distribution network to quickly enter into new geographical regions and foreign markets
2. The licensor facing lower capital requirements and lower costs due to not having to invest in distribution
3. The licensor having the ability to generate passive revenues through royalties
4. The licensor being able to gain the expertise and skills of the licensee

Advantages to the licensee include:

1. The licensee gaining access to established intellectual property and being able to enter the market more quickly
2. The licensee not having to pool resources to conduct research and development to develop their own products or services
3. The licensee being able to generate revenues by using the intellectual property of the licensor

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