Exclusive License Agreement: Everything You Need to Know
An exclusive license agreement covers a license that is limited to a specific field or subject, such as a market, territory, length of time, or context. 3 min read
An exclusive license agreement covers a license that is limited to a specific field or subject, such as a market, territory, length of time, or context. The agreement could cover a tech application, a method of production, a geographical area, or production of a specific product.
In this scenario, exclusive does not mean a “one and only” license, but rather the licensor agrees not to issue any other licenses with the same rights that fall within the field or scope that covers said agreement. The licensor can issue an unlimited number of licenses that have different rights within the same field, or licenses with the same rights in a different field. The holder of an exclusive license has the right to take legal action against anyone who infringes on any licensed rights within the field or scope of the agreement.
Difference Between Exclusive and Non-Exclusive License
Exclusive license gives the licensee the option to invest in the development of market potential whereas a non-exclusive license gives the licensee the non-exclusive right to use the technology. The non-exclusivity of a license is likely to dissuade the licensee from investing in market development. The reason is because a licensor could sell licenses to the licensee's competitors once the initial licensee establishes a market for the product.
For start-ups, having a patent's exclusive license is more desirable and valuable than owning the patent, as these represent big capital investments for a startup business. Office buildings are also a big capital investment for a startup, but no startup typically owns their office building outright. Even if the building is mortgage-free, they would take a mortgage on the building to free up some capital.
An exclusive license gives pretty much the same benefits as a lease agreement — the startup company gets to maintain control of the asset(s) but doesn't have to spend any capital to do so. While both non-exclusive and exclusive licensing permits both allow a licensee to use intellectual property in exchange for a specific negotiated compensation, each one differs in how much exclusivity is granted to the license holder.
Exclusive license classification is not restrictive, and there are other types of licenses available. There is a “co-exclusive” licensor that gives multiple licenses as opposed to just one licensee, but it agrees that it will limit the licenses to a limited group. Then, there are sole licenses. These are exclusive in a way that there are no additional licensees, but the licensor reserves his or her right to exploit their own intellectual property.
Advantages of an Exclusive License
There are a number of advantages of an exclusive license versus owning a patent:
- Aligned incentives between licensee and licensor
- Patent holder is incentivized to have an excellent patent
- Unpredictable patent costs can be eliminated
- Exclusive license can give a business more operational flexibility
- Some license agreements can be transferred
- Exclusive licenses give a licensee control of an asset without requiring a large amount of capital
Companies with licensing agreements can be immune to lawsuits because the patent is owned by a separate entity. This means a contractor, customer, employee, disgruntled business partner, competitor, or any other person cannot sue the company with the hope of winning the patents. This makes a company far less attractive to a plaintiff.
Exclusive license agreements are just contracts. And, in a contract, each party can specify the terms for what they will give and receive. Given that many startup businesses, as well as CEOs, do not have related experience with either non-exclusive or exclusive licenses, it's good that these agreements are enforceable and well-respected. These agreements can include a variety of terms, including arbitration clauses, late payment mechanisms, and more.
License agreements can be drafted, reviewed, and negotiated by a standard contract attorney, and are enforceable in court because they are contracts.
What Should Exclusive License Agreements Include
There are a variety of topics your exclusive license agreement should touch upon:
- Subject matter
- Summary of use
- Background or purpose
- Party contact details
- Licensed processes and products
- Retained rights
- Permitted uses
- Employer-owned contributions
- Details on government contracts
- Copyright notices
- Course of action if copyright is infringed
- How information will be used
If you need help with exclusive license agreements, you can post your legal need 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.