A license agreement is made between two parties, the licensor and the licensee, and generally grants the licensee the right to use the licensor’s property in exchange for royalty payments.
License agreements are used in many different situations and deal with different subject matters. One large area where license agreements are typically used are with a licensor’s intellectual property. For example, license agreements that allow the licensee to develop, produce, and sell merchandise related to a sport’s team’s logo; or dealing with agreements that allow the licensee to use the licensor’s patented technology.
License agreements are complicated business contracts. The terms of a license agreement are used to establish
- The scope of the agreement;
- The parties’ rights and obligations, for example, the licensor may have the right to monitor and control the quality of the property being licensed to the licensee;
- Lay out whether there is exclusivity or territorial restrictions;
- Financial matters, such as, whether advances are required, how royalties will be calculated, guarantee of minimum sales;
- The length of the agreement;
- Terms for returns and allowances; and
- Time schedules.
These type of agreements specifically describe in detail how payments will be made between the licensee to the licensor. These payments are generally made by guaranteed minimum payments and sales of royalties. Time frames and schedules are also essential terms of a license agreement. For instance, licensors may insist on a strict market release date for certain products that are licensed to outside parties. Essentially, license agreements account for the length of the contract, renewal options, and termination conditions.