Drafting License Agreements: Everything You Need to Know
When drafting license agreements, there are several factors that need to consider, including how the licensee can use your property and the required payments.3 min read updated on January 01, 2024
When drafting license agreements, there are several factors that you need to consider, including how the licensee can use your property and the required payments. Drafting a strong licensing agreement is the most effective solution for protecting your intellectual property.
Tips for Business Licensing Agreements
Most businesses own a wide range of valuable intellectual property. If you want to allow another person to use your business's property, you would need to write a licensing agreement. Licensing agreements will outline out how your property can be used, and is frequently used for pieces of software.
Before you can license your property to another person, you must have sole rights to the property. To establish exclusive property rights, you should complete as many intellectual property registrations as are available:
It may also be possible to secure your property with laws related to trade secrets. These laws allow you to protect your property within your company without having to make a public disclosure, which is a requirement when registering for intellectual property protections with the government.
Writing Licensing Agreements
While some licensing agreements grant exclusive rights to the licensee, you could also provide nonexclusive rights, which means you could license your property to multiple people to generate more revenue. Nonexclusive licensing rights are also beneficial because they provide fuller protection for your product. The only exception to this rule is if the license is for a custom good. You can use the licensing agreement terms to outlines exactly how the licensee can and cannot use your property.
Some of the rules you can add to your agreement include:
- Prohibited uses of your property.
- Rights to modify your property.
- Terms for terminating the licensing agreement.
You may also need to include terms related to how the license can be transferred and if sublicensing is possible. Licensees will need to agree to warranty terms and will also need to acknowledge the limited liability of the licensor. Some licensing agreements restrict the length of the agreement and may also include a specific procedure for how the license can be renewed.
Every licensing agreement should cover payments required for using the property. Outlining payment terms can help maintain your business's revenue streams and may make it easier to collect royalty payments. Required payments will depend on the nature of the licensing agreement. Some agreements will require a one-time payment made at the beginning of the contract, while others will dictate multiple payments made on an installment plan.
You can also include language in your agreement that will allow you to enforce licensing rights. For example, you could state that if the licensee violates copyright laws, he or she may face criminal or civil penalties. If you need a licensing agreement, it's possible to use a template instead of drafting a new agreement. If you use a template, however, you should be sure to add any language that may be necessary to clarify issues specific to your business.
Licensing Agreements for Software
A person who purchases a piece of software must agree to a software licensing agreement before they can use the program. Software licensing agreements are commonly referred to as an end user agreement. The agreement used will depend on the nature of the software. Some software licensing agreements cover products marketed to a wide range of consumers. Other pieces of software will use an individual licensing agreement.
Software licensing agreements serve two important purposes. First, they can protect your company from litigation. Secondly, they outline approved uses of your software. Licensing agreements for software can be very complicated, so it's best to hire a lawyer to help you draft your agreement.
When writing your software licensing agreement, you should make sure to properly format the contract. Use a font that is easy to read and stick with this font throughout the agreement. You also need to add a title to the agreement. Sticking with a simple title such as “Software License Agreement” is the best idea. If you are using your licensing agreement for a piece of mass market software, you should add an agreement provision to your contract.
A mass market agreement can be beneficial because end users can consent to their agreement when installing your program instead of you needing to obtain a signature from every user.
If you need help with drafting licensing agreements, you can post your legal needs on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.