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License Agreement – Definition, Characteristics, and More

License Agreement Definition

A license agreement is a contract between two parties (the licensor and the licensee). The Licensor scholarships the license to use the brand, trademark, patented technology, or the ability to produce and sell goods owned by the licensor.

In other words, an end-user license agreement gives the licensee the ability to use the intellectual property owned by the licensor. The licensor often uses licensing agreements to commercialize their intellectual property.

In a typical license agreement, the licensor agrees to provide the licensee with intellectual property rights, such as the licensor’s technology, brand name, or product creation knowledge.

In exchange for the licensor’s intellectual stuff, the licensee generally pays an initial fee and royals fee to the licensor. A royalty fee is a constant fee paid for the licensor’s right to use the intellectual property.

Characteristics of License Agreement

license agreement

As characteristics of the license agreements, we can highlight the following:

1. Promising Contract

  • This contract results purely in one of the parties’ commitments and legal obligation, such as a contract.
  • One of the parties is committed to building a particular house according to a plan. In return, the other party is obligated. To pay you.
  • It differs from the possessory contract, a contract that transfers property from one party to another.
  • The seller is obliged to deliver the property to the buyer. In possessory contracts, the negotiated case must be available during the contract. Otherwise, the transaction is void.
  • But in the promissory agreement, the transaction may not be public during the contract and be created later.
  • Considering the nature of the license agreement ( intellectual property ) and no external objectives, we put it in the category of promising contracts.
  • However, the transfer of ownership of the patent or trademark (and other industrial properties) may result in the license agreements’ ownership characteristics.
  • In this case, the transferee has the right to pursue directly and without resorting to transmitting any person who has violated or exploited the patent or registered trademark.

2. Bilateral

  • The contracts have been divided into bilateral or unilateral depending on whether two parties or only one participant.
  • There are reciprocal obligations for both parties in bilateral agreements, while in unilateral contracts, there is only a commitment for one of the parties.
  • In the case of reciprocal licenses, there is no doubt that the contracts mentioned are bilateral.
  • The permit’s giver agrees to assign the intellectual property of the subject of the contract. The recipient of the license agrees to pay royalties.
  • A distinction must make between registered and unregistered intellectual property licenses. In the register of trademarks and patents, the registered intellectual property license indicates different conditions.
  • Failure to use the property within the expiration date of the law grants the right of nullity to each beneficiary.
  • As for intellectual property, including technical knowledge, which is not registered, the licensee obtains the obligation to exploit unless otherwise stated in the contract.
  • And also, the non-use of the property does not oblige them to seek invalidation or compulsory license.

3. Formal

  • The intention contracts are contracts that are concluded per the will of the parties, provided that there is some benefit, and implementation of these contracts do not require any formalities such as the use of certain terms.
  • A formal contract is an agreement with certain formalities, such as formalising official documents, and the parties’ will is not enough; it will express in a certain way.
  • In response to this question, some distinctions must make between registered and unregistered intellectual properties; in the first case, the contract is formal, and the second case, the contract is a permit.
  • Some articles of registered patents have required that any transaction related to a patent or trademark record. If they are not registered, they are not valid for third parties.

Model of License Agreement

There are two models of the license agreement.

Patent / Utility Model Rights are licensed to:

  • Develop, use and market the product in the territory and the field of application;
  • Manufacture and contract the product’s manufacture to a third party, provided that said the third party agrees not to manufacture it for any other entity.
  • The duration of the contract link to patent rights. The license agreement in a certain country will end when the patent rights in that country expire.

The Licensee Company:

  • You will choose the countries to which the Patent Rights extend;
  • It will be responsible for the preparation, application, management and maintenance of the Patent / Utility Model Rights;
  • You will bear all the related expenses;
  • Suppose the Company not interest in extending the Patent Rights to other countries.
  • In that case, the public entity may do so in its name and find another licensee company for that specific territory.

The model regulates the transfer of technical knowledge and know-how related to the patent:

  • It obliges the research centre to transfer all the knowledge related to the patent for its correct development reproduction.
  • It prevents the company from requiring the centre to work on further development for free.
  • And also, it limits the knowledge to transfer to the determined research group.
  • If the company does not carry out any development or any marketing activity within a period to determine, the public centre may terminate the contract.

Different formulas of economic compensation propose for the parties to choose the most appropriate:

  • Down-payment or initial amount;
  • Royalties (% of sales) – fixed or variable;
  • Payments for milestones reached;
  • And also, annual minimum.

The termination of the contract occurs by:

  • Breach of one of the parties;
  • Non-payment;
  • And also, opposition to Patent Rights by the company.

License Agreement Between two Companies

license agreement

The duration of the license agreement ties to patent rights. The license agreement in a certain country will end when the patent rights in that country expire.

An exclusivity clause includes whereby the Licensor Company:

  • They will not exploit the product that is the object of the Patent / Utility Model.
  • It may exploit the Patent / Utility Model by itself or through the granting of sub-licenses.
  • The Licensee Company develops modifications and improvements to the patent:
  • Owner licensing company said rights include within this license agreement;
  • Shared ownership between both companies.
  • Holder of the licensee company who in turn will grant the licensor a non-exclusive, free license.

Types of License Agreement

Different types of licenses depending on the product covered by them, their exclusivity or not, and their duration. Let’s look at each of them.

1. Patent

  • Patents cover science and innovation. Patent licensing agreements are the documents through which a patent owner allows someone else to use their patent.
  • In practice, patent owners choose to license their patents to manufacture and widely distributed.
  • The people and companies that create patentable material (such as new inventions) are often not the same parties that can easily make and distribute it.
  • It’s easier to let someone else handle the business side of the patent while continuing to earn royalty payments.
  • These are generally the most complex types of license agreements due to all that goes into obtaining and maintaining a patent.

2. Trademarks

  • Trademarks are signifiers of commercial origin, namely brand names and logos or slogans.
  • Trademark license agreements allow trademark owners to allow others to use their intellectual property.
  • Most of the time, trademark owners license their trademark for commercial products, such as clothing, iPhone cases, or food products.

3. Copyright

  • Copyright is the art of the world of intellectual property. Copyrights exist, for example, in works of visual art, such as paintings, movies, or songs.
  • These rights also exist in characters, such as Mickey Mouse.
  • Copyright license agreements often use for consumer goods, as are trademark licenses.
  • They also use for distributions, such as with musical works or movies.

4. Trade Secrets

  • Trade secrets are unique in that they do not register with the government.
  • Patents, trademarks, and copyrights are most valuable when they have been recorded. Trade secrets protect only through their secrecy.
  • Two of the most well-known examples of trade secrets are the Coca-Cola formulas and the KFC chicken recipe.
  • Trade secret licensing agreements often come with nondisclosure agreements. These state that the party is receiving certain confidential information cannot share it with anyone.

5. Exclusive

  • Exclusive licenses are those that make a unique relationship between the licensor and the licensee.
  • In this type of license agreement, the licensor agrees that the licensee is the only one who can make use of the intellectual property. These generally cost more to the licensee.

6. Not Exclusive

  • In a non-exclusive license, the licensor can license the intellectual property to more than one licensee.
  • These types of license agreements generally cost less to the licensee.

7. Unique

  • In a single license, the licensor agrees to use only one licensee, but the Licensor reserves the right to continue using their IP as well.

8. Perpetual

  • A perpetual license is when the licensee purchases the right to use the intellectual property only once and then uses it for life.
  • This is often the most expensive type of license because the licensor will not receive ongoing royalties.
  • Perpetual licenses can see most commonly in software.

9. Temporary

A temporary license organizes in two ways:

  • The licensee may pay a one-time fee for a specified period or
  • You can pay per use (these are traditional royalties).

Temporary licenses are much more common in all industries. Although many people don’t see it this way, when you pay Netflix each month, part of that fee is a license to use their proprietary digital software.

Duration of the License Agreement

  1. A license agreement has a start date and an end date. One party usually prefers a longer contract than the other.
  2. Therefore, the renewal rules also include. Typically, the duration of the license coincides with the life of the patent.
  3. As we indicated previously, the license can be perpetual or temporary.
  4. The geographical scope of application of license agreements.
  5. And also, licenses usually grant for the entire territory in which the technology protects.
  6. However, the technology owner may take full advantage of the benefits of exploiting its technology and grant exclusive licenses.
  7. In different territories, to various licensees that have the maximum exploitation capacity in each of those territories.

Conclusion

A license agreement is a contract between two parties (the licensor and the licensee).

The Licensor grants the Licensee the right to use the brand, trademark, patented technology, or the ability to produce and sell goods owned by the licensor.
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