Drafting license agreements: what, who, how, where and when

November 9, 7:59 AMSF Starting Your Own Business ExaminerDelida Costin

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Companies enter into license agreements to grant others permission to use company property like a name, product, logo, software or even a new invention. Effective license agreements define what, who how, where and when a party may use that property.

What.   Perhaps the most important provision in a license agreement is the description of the property. The description should be as complete and accurate as possible, leaving little room for ambiguity. For example, trademark license agreements might include an exhibit of trademark usage guidelines. A software license may include (or not include) updates and modifications.

Who.  Who will have rights to use the licensed property? Licenses may be granted to an entire company, a subsidiary of a company or even only to a certain number of people or a certain group of people within a company. A licensor should also decide whether the licensee will have the right to license the property to third parties, and if so, under what terms.

How.  It is important to define how the licensed property may be used. For instance, an imaging company that has developed certain technology may only want that technology to be used in consumer cameras and not medical devices, and may limit the license scope accordingly. 

Where.  Licenses often define the geographic territory in which the license is effective. In some cases the geographic scope may be worldwide. In others, it may be more appropriate for the scope to be limited to a certain state or region. For example, a manufacturer may decide that it needs to enter into relationships with several distributors. In this case, the licensor may grant each distributor the exclusive right to distribute products only in a certain region, based on where that distributor’s best network may exist.

When.  Some licenses are perpetual and go on indefinitely without any further action from the parties. Some licenses are limited to a certain number of months or years and must be renegotiated upon expiration. Companies that continue to use the licensed poperty beyond the term of the license may be infringing and subject to damages and penalties.

What else? In addition to these questions, good license agreements might also require some attention to several other questions like why is the license being granted, how does a party accept a product, what happens if the license is breached, who is responsible if the licensed property infringes on third party rights, what happens if a licensed product is included in another product which is eventually recalled by the government.

Companies that either license out property or license in property should take the time to think through these questions and how the answers fit into their overall strategy. It can be a bitter pill to find out after an agreement is signed that a license was not drafted narrowly enough or broadly enough to afford adequate protection in alignment with business needs and costs.

Special thanks to guest blogger Karen Peterson, Esq. For more information, contact Karen at klpeterson.law@comcast.net.

For more articles about starting your own business, subscribe above to receive regular updates from this column. You can also follow The Law Office of Delida Costin on Twitter or become a fan on Facebook. Visit www.costinlegal.com to learn more about The Law Office of Delida Costin and the legal and negotiation expertise it offers growing businesses.

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