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License Agreements: What is a License Agreement? (Part 1)

In part 1 of this blog series, we will describe the nature of a license agreement: what does a license agreement entail and what rights can be licensed?
 
Christel Jeunink
22 June 2023
23 June 2023

Intellectual Property Rights

Intellectual property rights are rights granted by law to 'creations of the mind'. These could encompass various rights such as patent rights for technical inventions and methods, copyrights for original, creative works, trademark rights for distinguishing marks, design rights for drawings and models, and database rights for databases.

The holder of an intellectual property right can prohibit third parties from using this right or exploiting it without their permission, as these rights are exclusive to the holder. Therefore, intellectual property rights are often referred to as 'exclusive rights'.

 

License Agreements

Anyone who owns intellectual property rights can license these rights (‘for use’) to a third party. Often, this happens when the holder of the intellectual property rights does not have the resources or the capacity to exploit their rights or if they wish to commercialize their intellectual property rights, perhaps to recoup investments made.

Typically, a license is documented in a license agreement. This is an agreement where the right holder grants another party a user or exploitation right concerning their intellectual property rights. The holder of the respective intellectual property right (the licensor) agrees not to enforce their exclusive usage and exploitation rights against the licensee under the terms of the license agreement.

 

Types of License Agreements

There are various types of license agreements, such as exclusive licenses, non-exclusive licenses, sole licenses, and open licenses.

  • Exclusive Licenses In an exclusive license agreement, the licensee obtains the sole right, excluding the licensor, to use or exploit the respective intellectual property right.
  • Non-Exclusive Licenses In a non-exclusive license agreement, the licensor retains the right to conclude a license agreement with other parties regarding the respective intellectual property right. In addition, the licensor has the right to use or exploit the intellectual property right themselves.
  • Sole Licenses In the case of a sole license agreement, the licensor may not grant licenses to third parties, but it can use or exploit the intellectual property right himself.
  • Open Licenses In the case of an open license, the right holder grants license rights to any interested party that meets predetermined conditions.

Other forms are conceivable and used in practice, depending on the respective intellectual property right or the type of service or product.

 

Content of the License Agreement

A license agreement includes specific agreements about the scope of the license. Such agreements could involve:

  • the type of license agreement (exclusive, non-exclusive, or sole);
  • the territory for which the license is granted;
  • the applications or 'fields of use';
  • the permitted actions;
  • quality requirements;
  • the duration and termination of the license;
  • the licensee's authority to grant sub-licenses;
  • the amount of the license fee (lump sum and/or royalties);
  • the licensee's exploitation obligations;
  • confidentiality, etc.

Depending on the circumstances, the appropriate conditions need to be determined.

 

Written Documentation of License Agreements

Generally, license agreements are not required to have a specific form and thus can be concluded orally and in writing. However, in some cases, the law requires the license to be documented in writing. This is mandatory, for example, for exclusive copyright licenses; these must be documented in a deed according to the Copyright Act. Regardless, it is recommended to always put a license agreement in writing. This can be important or necessary for the registration of the license in the patent or trademark register. Moreover, the respective obligations can only be precisely determined based on a written license agreement. This is essential should a dispute ever arise between the licensor and the licensee.

In our upcoming blogs, we will delve deeper into the different aspects of the license agreement, including the scope of license agreements.