Types of Licensing Agreements

• November 11, 2024
• Business Law

A licensing agreement lets one business use another party’s intellectual property, brand, content, technology, software, trade secrets, or other protected asset under specific conditions. For Florida business owners, the right license depends on what is being licensed, who owns it, how it will be used, where it can be used, whether the license is exclusive, how royalties are paid, and what happens if the agreement ends.

Before signing a licensing agreement, the parties should clearly define the licensed asset, territory, duration, royalty structure, sublicensing rights, quality control, confidentiality, audit rights, termination rights, and ownership of improvements. A short agreement may look simple, but missing terms can create expensive disputes later.

Are you thinking of licensing out something that you own, but aren’t sure about the various types of licensing agreements? There are a few ways to license intellectual property (or “IP”). To do so, you must first understand the different types of license agreements.

Here, we’ll discuss what a license agreement is and how you can decide which is right for you.

What is a licensing agreement?

A licensing agreement is a legal contract by which one party that owns certain IP allows another party to use that IP. The party who owns the IP (the licensor) receives payment (a royalty) when the other party (the licensee) uses the IP.

Licensing agreements can be broken down by the types of IP they license. They can be further broken down into exclusivity and duration.

What Does a Licensing Agreement Allow?

A licensing agreement allows the licensee to use, distribute, or modify the licensor’s intellectual property, such as patents, trademarks, or copyrights, often in exchange for royalties. These agreements enable revenue generation for the licensor while providing the licensee with rights to commercially exploit the property.

The Major Types of Licensing Agreements

When businesses share intellectual property, the specific type of asset dictates the structure of the contract. Here is a breakdown of the primary forms of licensing agreements used today.

Trademark Licensing Agreements A trademark license gives a party the right to use another company’s logos, slogans, or brand names on their own products or marketing materials.

• What it licenses: Brand identity and consumer trust.
• Typical parties: A well-known brand and a product manufacturer.
• Key clauses: Strict quality control standards (to protect the brand’s reputation).
• Common use: Merchandise, apparel, and consumer goods.

Copyright Licensing Agreements A copyright license grants permission to reproduce, display, or distribute an original work of authorship.

• What it licenses: Creative works like literature, art, music, code, and photography.
• Typical parties: Creators (authors, artists, musicians) and distributors (publishers, record labels, streaming platforms).
• Key clauses: Medium limitations (e.g., print vs. digital rights) and derivative work permissions.
• Common use: Publishing a book, using a song in a film, or printing art on a t-shirt.

Patent Licensing Agreements A patent license allows a third party to manufacture, use, or sell a patented invention without facing infringement lawsuits.

• What it licenses: The functional utility or design of an invention.
• Typical parties: Inventors or research institutions and manufacturing companies.
• Key clauses: Sublicensing rights and territory restrictions.
• Common use: Pharmaceutical manufacturing, electronics production, and mechanical engineering.

Trade Secret Licensing Agreements A trade secret license permits a business to use confidential information, formulas, or proprietary processes that derive value from remaining unknown to the public.

• What it licenses: Confidential business information and processes.
• Typical parties: A company with a proprietary process and a trusted partner or manufacturer.
• Key clauses: Extreme confidentiality (Non-Disclosure Agreements) and restrictions on reverse engineering.
• Common use: Food recipes (like the Coca-Cola formula) and proprietary manufacturing techniques.

Brand and Merchandise Licensing Agreements A merchandise license is a specialized hybrid of trademark and copyright law that allows manufacturers to create products featuring popular characters, movies, or sports teams.

• What it licenses: The likeness of characters or sports franchises.
• Typical parties: Entertainment studios or sports leagues and toy, clothing, or accessory makers.
• Key clauses: Approval rights for product designs and minimum sales guarantees.
• Common use: Action figures, professional sports jerseys, and branded lunchboxes.

Music and Media Licensing Agreements A media license handles the complex web of rights necessary to use audio and visual content in public or commercial settings.

• What it licenses: Sync rights (pairing music with video), mechanical rights (reproducing audio), and public performance rights.
• Typical parties: Composers, artists, and music publishers dealing with filmmakers, advertisers, or retail stores.
• Key clauses: Duration (term of use) and territory (worldwide vs. regional rights).
• Common use: Background music in a commercial, a song played in a restaurant, or a movie soundtrack.

How to decide between types of licensing agreements

1. Decide which IP you need to license.

Patent Licensing

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 so that they can have it manufactured and distributed widely. The individuals and businesses that create patentable material (like new inventions) aren’t usually the same parties that can easily manufacture and distribute it. It’s easier to allow someone else to handle the business side of the patent while continuing to earn royalty payments.

These are generally the most complex types of license agreements because of everything involved in obtaining and maintaining a patent.

Trademark Licensing

Trademarks are signifiers of commercial source, namely, brand names and logos or slogans. Trademark licensing agreements allow trademark owners to let others use their IP.

Most often, trademark owners license their trademarks for commercial goods, like clothing, iPhone cases, or food products.

Copyright Licensing

Copyright is the artwork of the IP world. Copyrights exist in, for example, works of visual art, like paintings, or movies, or songs. Copyrights also exist in characters, like Mickey Mouse.

Copyright licensing agreements are often used for consumer goods, just like trademark licenses. They are also used for distributorships, such as with musical works or movies.

Trade Secret Licensing

Trade secrets are unique, in that they are not registered with the government. Patents, trademarks, and copyrights are most valuable when they have been registered with the federal government. Trade secrets are protected only through their secrecy. 

Two of the most famous examples of trade secrets are the formulas for Coca-Cola and the recipe for KFC chicken.

Trade secret licensing agreements often come with non-disclosure agreements (or NDAs). NDAs state that the party receiving certain confidential information cannot share it with anyone. 

2. Type of Relationship Between Licensor and Licensee

There are three main types of licensing agreements:

1. Exclusive License: Grants the licensee sole rights to use the intellectual property (IP). The licensor cannot license the IP to anyone else during the agreement term.
2. Non-Exclusive License: Allows the licensor to license the IP to multiple licensees. This is commonly used when the licensor wants to maximize reach and distribution.
3. Sole License: Gives one licensee rights to the IP, but the licensor can still use the IP themselves. It offers a balance between control and market distribution.

3. Decide on the duration of your license.

There are also two different types of license agreement durations.

Perpetual

A perpetual license is one where the licensee buys the right to use the IP just once and then can use it for a lifetime. Often, these are the more expensive type of license because the licensor won’t receive ongoing royalties. 

Perpetual licenses can be seen most commonly in software.

Term

A term license is organized one of two ways: (1) the licensee can pay a one-time fee for a certain term or (2) the license can pay per use (these are traditional royalties).

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

According to BrewLong attorney, Ashely Brewer: “Licensing agreements are like lease agreements. A lot depends on the property involved and the relationship of the parties.”

Licensing Comparison Matrix

Licensing vs. Franchises and Assignments

It is easy to confuse licensing with other forms of business agreements. Understanding the differences will keep you legally compliant.

Licensing Agreement vs. Franchise A license grants permission to use a specific piece of intellectual property, like a logo or a character. The licensor generally does not dictate how the licensee runs their day-to-day business. A franchise, however, is a comprehensive business model. In a franchise, the franchisee uses the franchisor’s brand, operating systems, marketing plans, and uniform standards. Franchises are subject to strict federal and state regulatory disclosures that do not apply to simple licensing agreements.

Licensing Agreement vs. Assignment (or Lease) An assignment is a permanent transfer of ownership. If you assign your patent to someone else, you sell it completely and lose all rights to it. A license is temporary permission to use the property; you retain ultimate ownership. Similarly, while a lease involves renting physical property (like a building or a vehicle), a license involves granting rights to intangible intellectual property.

Real-World Examples of Licensing

Licensing agreements drive the products you interact with every day. Here are a few clear examples:

• Brand Licensing: A toy manufacturer pays The Walt Disney Company for the non-exclusive right to manufacture and sell action figures based on a new movie.
• Patent Licensing: A university research lab develops a new chemical compound and grants an exclusive license to a major pharmaceutical company to manufacture and distribute the resulting medication.
• Software Licensing (SaaS): A small business pays a monthly subscription fee for the non-exclusive right to access a cloud-based accounting platform.
• Music Licensing: An advertising agency pays a sync licensing fee to a record label to feature a popular pop song in a national television commercial.

CONTACT BREWERLONG TODAY FOR YOUR LICENSING NEEDS

As you can see, there are many types of licensing. An experienced IP attorney can help you figure out what type of license agreement you need, as well as what needs to go into that agreement.

To schedule a consultation about your IP licensing, call our office at 407-660-2964, contact us online, or email us at contact@brewerlong.com.

FAQs

What are the main types of licensing agreements?

The main types include trademark licenses, copyright licenses, patent licenses, trade secret licenses, software licenses, brand licenses, content licenses, and technology licenses. Licensing agreements can also be structured as exclusive, non-exclusive, sole, perpetual, or term-based agreements.

What is the difference between an exclusive and non-exclusive license?

An exclusive license gives one licensee the right to use the licensed asset within the agreed scope. A non-exclusive license allows the licensor to grant similar rights to other licensees.

What is a sole license?

A sole license gives one licensee rights to use the asset, but the licensor usually keeps the right to use the asset as well. It is different from an exclusive license because the licensor may still retain direct use rights.

Can I license a trademark without losing ownership?

Yes. A trademark owner can license another party to use the trademark while retaining ownership. The agreement should include quality control provisions, approved uses, brand standards, and remedies for misuse.

Does a copyright license need to be in writing?

A non-exclusive copyright license may sometimes arise without a formal written agreement, but exclusive copyright grants should be in writing and signed. Under 17 U.S.C. § 204, a transfer of copyright ownership requires a signed writing.

Can a patent license be limited to one industry?

Yes. Patent licenses may be limited by field of use, territory, time, or market. The USPTO notes that patent licenses can be limited by time, geography, or field of use.

What should a trade secret license include?

A trade secret license should include confidentiality obligations, restricted access, security controls, no reverse engineering, return or destruction obligations, and remedies for unauthorized disclosure or use.

Should Florida businesses use a licensing agreement template?

A template may help identify common clauses, but it may not fit the asset, risk, royalty model, Florida business relationship, tax treatment, territory, or enforcement needs. A custom review is safer for valuable IP or long-term licensing deals.

Michael Long

Michael Long, a distinguished Business and Litigation Attorney at BrewerLong, brings a unique blend of tenacity and insight to his practice, honed from his time as a decorated combat veteran in the Marines. Specializing in complex litigation, Michael adeptly navigates the intricacies of business break-ups, professional liability, and a wide array of disputes encompassing tax, trust, real estate, contract, intellectual property, and loan issues. His expertise extends to business counseling, where he skillfully handles commercial contracts, company creation, intellectual property challenges, and more. Michael’s approach is holistic; he leverages his transactional and litigation experience to foresee and tactically address both immediate and long-term client needs, ensuring practical, cost-effective solutions that maximize benefits while minimizing risks. His commitment to excellence is evident in his affiliations with prestigious organizations like the American Legion, Central Florida Christian Chamber of Commerce, and the Orange County Bar Association, among others. He’s a committed advocate, driven by a passion to deliver results and justice for his clients.

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