Everything about the license agreement

A license agreement grants another party the right to use IP rights — trademark, patent, copyright, design right, or know-how — without a change of ownership. There are three main forms: exclusive license (only the licensee may use), non-exclusive (multiple licensees), and sublicense (the licensee may license further). Remuneration is provided via royalty (% of turnover), a fixed fee, or a minimum guaranteed payment. A good contract prevents years of disputes regarding scope, exclusivity, and enforcement. Below: structure, pitfalls, and what Maya is considering for her logo portfolio.

The short answer

• What: right of use of intellectual property without change of ownership.
• Forms: exclusive, non-exclusive, sublicense.
• Remuneration: royalty (% turnover), fixed fee, or hybrid with minimum guarantee.
• Duration: fixed term or as long as the IP right exists.
• Important: precisely define scope, exclusivity, enforcement, and termination.

What is a license?

Permission from the intellectual property right holder (licensor) to another party (licensee) to use the intellectual property right, in exchange for payment. Unlike transfer: ownership remains with the licensor, the right of use with the licensee.

Examples:

• Brand: McDonald's license to franchisee.
• Patent: technology license for production.
• Copyright: software license for use.
• Model: license for the production of design.
• Know-how: recipes, processes.

Three main forms

1. Exclusive license

Only the licensee may use IP — not even the licensor anymore. Strong right, higher compensation.

Variant: “exclusive license” — only the licensee, but the licensor may also do so.

2. Non-exclusive license

Multiple licensees are granted the right of use. Flexible for the licensor — less distinctive for the licensee. Often used for software and technology.

3. Sublicense

Licensee may further license IP to third parties. Requires explicit permission in the original license. Relevant for commercial platforms and franchise systems.

Royalty structures

Percentage of revenue

Most common. Typically 3-15% of net revenue from licensed products. Lower for commodities, higher for unique IP.

• Example: 5% on sales of products with a registered design.
• Variable: tier structure — lower royalties with higher revenue.

Fixed fee

One-off or periodic (annual). For situations where revenue is difficult to measure. E.g. €50,000 per year for brand name usage.

Minimum guaranteed payment

Royalty on actual turnover, with a minimum annual amount. Protects the licensor against a passive licensee.

Up-front lump sum + royalty

One-time upfront payment + ongoing royalty. For IP with high initial value plus ongoing use.

What should it contain?

1. Identification of parties: licensor, licensee.
2. Description of IP: specifically which trademark/patent/copyright.
3. Scope: which products/services, geographic area, modes of use.
4. Exclusivity: exclusive, non-exclusive, or sole right.
5. Sublicensing rights:may the licensee license further?
6. Remuneration: royalty %, fixed fee, payment terms, minimum.
7. Reporting: how often does the licensee report revenue/usage? Audit rights.
8. Quality control:what standards must a licensed product meet?
9. Duration: fixed term or terminable?
10. Termination: grounds for termination, consequences.
11. Enforcement: who takes action against infringement by third parties? Cost allocation.
12. Liability: indemnification, limitations.
13. Applicable law and court: in the case of international division.

Common pitfalls

• Vague scope: “for use in marketing” is too broad — specify channels, duration, and format.
• No quality control:licensee can damage brand reputation.
• No reporting obligation:the licensor gains no insight into actual revenue/royalty.
• No right of audit: no right to a book audit in case of suspected understatement.
• No enforcement agreements:who pays cease and desist letters/proceedings against third parties in the event of infringement?
• Vague grounds for termination:dispute over whether termination is justified.
• No automatic termination upon insolvency: licensee bankruptcy = ongoing.

Term and termination

Fixed term (5-10 years common) with renewal option. Or as long as the IP right exists (patent expires → license terminates automatically).

Grounds for termination:

• Expiration of the term.
• Non-payment.
• Violation of quality standards.
• Bankruptcy or insolvency.
• Change of control.
• Non-use of license.

Example Mayan license

Maya wants to license her recognizable font “MayaSans”:

• Non-exclusive license for commercial use in marketing and design projects.
• Royalty: €250 per project, or an annual package of €2,500 for unlimited use.
• Duration: 12 months, automatically renewable.
• Termination: 60-day notice period, no refund of paid fees.
• Restrictions: not for pornographic, political, or religious expressions.
• Property: remains with Maya.

Honest recommendation

For IP rights with commercial value: licensing is often more advantageous than transfer — retention of ownership, royalty flow over time. Standard templates from an IP lawyer (€500-€2,500) prevent disputes lasting for years. For large licensing deals (patent, trademark franchise): a specialized lawyer with IP plus commercial experience. Key details: scope, royalty structure, quality control, enforcement. A small difference in wording equals a difference of thousands of euros over the years.

For other topics: what is intellectual property, copyright transfer deed and trademark registration.

Frequently Asked Questions