Looking for a simple short-term arrangement to use someone’s property? Maybe you may want to generate revenue off an intangible good. A License agreement covers the niches which other kinds of contracts don’t.
What is a License Agreement?
A licensing agreement is a contract between two parties where an owner (‘licensor’) allows another party (‘licensee’) to use their property under certain conditions. Licenses apply to personal property as well as real property. More recently, however, licensing agreement have been popular in the use of intellectual property rights.
Licensing agreements, however, should not be confused with lease agreements. The distinction is that lease agreements allow a licensee exclusive possession over the property for a period of time. If you licensed out a property, for example, both you and the licensee would be able to access it. Importantly, where you lease out the property, that property is the exclusive possession of the licensee for the duration of the lease.
Licensing revenue usually comes from the licensee paying the licensor fees. In some instances the licensor and licensee enter a revenue sharing agreement.
Types of License Agreements
Licensing can be found everywhere in today’s economy in private and public domains. For instance, driver’s licenses permit you to operate a vehicle on a public road. Here, the government is the licensor while you are the licensee. Public licenses often carry certain obligations. For example, hunter’s licenses permit you to hunt provided you leave the area in a responsible way. Medical licenses hedge expectations on doctors to care for their patients. Licenses do not give licensees free reign over their property.
In addition, you may have purchased a software license to use something like Microsoft Office. In particular, the most relevant type of license for businesses are franchising licenses. Franchising licenses give you permission to use their assets and brand to operate in a specific area.
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Why use a License Agreement?
There are a set of unique benefits which pertain to License agreements.
a) Non-Rivalrous Goods
If you’re trying to sell a good which cannot be consumed and is easily replicable consider using a License agreement. This includes things like software, copyright trademarks and various web services. Furthermore, it can also extend to things like sports brands, merchandise and technology.
b) Flexibility
License agreements can be varied where both parties consent. This includes changing the terms of the license or expanding/limiting its scope.
c) Boundaries
License agreements can limit use to a specific area. (Refer to the above example of franchising) Furthermore, areas without a clear boundary (e.g. a town square) cannot be leased but can be licensed. This can be useful for licensing out an area for a fair, or a stall.
d) Short-term
Licenses are useful for short-term agreements. This is because they are generally far simpler in nature compared to more complex long-term arrangements such as leases.
Summary
Licensing agreements can be useful to grant temporary use to another party under certain conditions. These can be used to protect your ownership of the property and/or generate profit. Although simpler than other agreements, licensing agreements can run into issues if not handled properly. Consult with our lawyers to help draft a license agreement.
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