A licensing agreement is a contract between two parties - a licensor and a licensee. It permits the licensee to use property belonging to the licensor.
What is a licensing agreement?
A licensing agreement permits a licensee to use property belonging to a licensor. These written agreements define a set of parameters for using the licensor’s property. This means that even under a licensing agreement the licensed property may not be used for any purpose - except those outlined in the agreement.
Licensing agreements can cover a wide variety of property: real estate holdings, personal possessions or intellectual property like copyrights, trademarks or patents.
What a licensing agreement should contain
The licensing agreement usually specifies what region the license applies to as well as a time period. It should also specify whether the license is exclusive or if other licensees are allowed to form a license agreement simultaneously. Scaling terms may also be included to determine the use of artwork for different versions (hardcover vs. paperback) of a book, for example. This could also prohibit the use in advertisement campaigns.
The question of compensation is specifically important. Based on the property that the licensing agreement is concerned with, different payment models can make sense. The use of songs is usually compensated with royalties, for example. That is to say, the owner of a song’s copyright is paid for every time the song is played on the radio, in a bar or even covered by another band at a live event. Other models could be a flat fee or even a rate per year/month/week.
Examples of licensing agreements
One example of a very common property included in licensing agreements is the likeness of a movie superhero. Toy manufacturers will often license this in order to sell action figures which are much more likely to be bought if they are based on a popular superhero. Another common example is the licensing of a song for an advertisement campaign or for the use in a movie. In the fast food market there are a number of companies based on the franchise concept, where a franchise holder licenses the rights to the name, products and advertisement materials from the main company.
Licensing agreements should not be entered into without consulting a lawyer well-versed in property law. This is because every licensing agreement is usually individual which also means that one should be wary of any standardized looking or non-written agreements.
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Disclaimer: This overview is for informational purposes only and cannot be counted as legal advice.