The Basics Of Licensing Agreements

You’ve probably heard of licensing agreements. But what are they? And how can they be helpful to your business?

Why Use Licensing Agreements?

Unlike selling something on your own—such as software, or intellectual property—you give someone else permission to use it or sell it, and you share, to some extent, in the profits. Licensing requires you to give up some control, but in return, you make money.

There are practical examples of licensing everywhere. The popular “Funko Pop” collectibles create figurines based on a diverse range of intellectual property. Certainly, if you created a character, you could just market it and try to make money off of it. But Funko Pop is in multiple stores, with an established reputation. It may be profitable to you to allow Funko Pop to create a figure from your IP (your created character), and allow them to sell it through their distribution channels.

Big tech often uses licensing agreements. Individuals develop technologies that allow video to be shown through the internet, or maps to be used on phones, or software that identifies music. Then, bigger tech companies, if they don’t outright purchase the patents, will buy the license, and incorporate the technology or software in their devices or software.

Considerations for Licensing Agreements

If you have something to license, or you want to license something someone else owns, there are some considerations for your licensing agreement.

The first concern is exclusivity. Some companies want an exclusive license. This is where you, as the inventor or licensor, give up the right to use your property or license it to anyone else. Only the company that is purchasing the license—the licensee—can use your property or invention.

Alternatively, you can create an agreement where just one licensee and you can use the property.

With a non-exclusive license, anybody can use the property. Think of Star Wars—there are multiple companies that are allowed to use Disney’s Star Wars IP, in multiple ways.

You can also have hybrid agreements. For example, company 1 can have an exclusive license for software, while company 2 has a non-exclusive license to use your IP on clothing.

Profits may be different depending on the medium. A licensee may want more money for online rights, than for use of the licensed IP on physical merchandise.

Usually, a licensor (the party granting the license) doesn’t have any responsibility for financial losses. If the licensee (the party given the license and permission to use the IP) loses money, the licensor may not get paid, but the licensor doesn’t owe any money.

Limitations on Licensing

Licensing usually doesn’t convey any control over the property, other than to use, sell or market it. In other words, another company can use your software, but doesn’t have the right to change the code, or design of your program, invention or design.

Likewise, licensees usually don’t have the right to license their license—that is, to put your invention or IP into different forms, absent the original creator/inventor’s (licensor’s) permission.

Call the West Palm Beach copyright litigation lawyers at Pike & Lustig for help drafting and reviewing your business agreements.