License Agreements

The heart of an intellectual property license agreement is permission that the owner of some intellectual property right gives to someone else to do something with respect the protected intellectual property asset that would otherwise constitute infringement. In other words, it’s an agreement that the licensor will not sue the licensee for infringement subject to certain limitations and conditions.  That last phrase, “subject to certain limitations and conditions,” is why license agreements can be so detailed, complex, lengthy, and difficult to understand. Although most people buying a license to software sold to the public do not need a lawyer, most other people, including the people selling software licenses to the public, are usually well advised to have their own lawyer involved.

Types of Intellectual Property Assets and Intellectual Property Rights

Intellectual property license agreements always involve two different aspects of intellectual property:  an intellectual asset and a property right. An intellectual asset originates with an idea in the mind of the creator:  A new story in the mind of an author; a new manufacturing process in the mind of an inventor; a new logo in the mind of a graphic designer. A property right is a right of exclusivity that the law gives the creator (or, sometimes, the employer of the creator). Here are some common types of intellectual property assets that may be the subject of a license agreement and some of the intellectual property rights that may possibly protect the asset, at least in the United States:
  • Books, articles, and short stories:  Copyright
  • Photographs, paintings, drawings, graphic images:  Copyright
  • Logos, slogans, taglines:  Trademark, copyright
  • Software:  Copyright, sometimes patents
  • Architectural designs:  Copyright
  • Packaging designs:  Design patent, copyright, trade dress, trademark
  • “Look and feel” of software and websites:  Trade dress, trademark, copyright
  • Manufacturing methods and processes:  Patent, trade secret
  • Recipes:  Trade secret
  • Customer lists:  Trade secret
  • Chemical compounds:  Patent
  • Methods of doing business:  Trade secret, patent?
  • Equipment, machines, electronic devices:  Patent
License Agreement Terms and Conditions

Drafting a good license agreement, either from the perspective of the licensee or the licensor, requires a great of thought, planning, and attention to detail.  At a minimum, any license agreement should answer the following questions:
  • What asset is being licensed?
  • What is the licensee permitted to do with the asset?
  • If the licensee is permitted to make improvements to the asset, who owns the improvements?
  • How long does the license last?
  • What is the geographic scope of the license?
  • Is the license exclusive or non-exclusive?
  • Is the license transferable?  
  • If transferable, may the transferees further transfer the license?
  • May the licensee grant sub-licenses?
  • If the licensee may sub-license, may sub-licensees also sublicense?
Risk allocation

In any license agreement, but especially software licenses, the issue of risk allocation can be paramount.  Most end-user license agreements are extremely protective of the software vendor, and for good reason.  Failure of even very inexpensive software can sometimes cause tremendous loss to the user.  If the vendor is forced to bear that risk, it must be factored into the price, and a $49.00 software purchase may cost ten times that much. In addition, the use of the software is generally out of control of the software vendor and entirely within the control of the end user.  However, risk allocation provisions that are common in EULAs for widely marketed software may be entirely inappropriate for custom software.

Even so, the responsibility for loss the licensed asset causes the user is only one aspect of risk allocation. Another is the remedy available to the licensor for a breach by the licensee. For example, if the licensee breaches a term of the agreement, is the license terminated, or does the license continue with the licensee possibly owing monetary damages to the licensor?

The issues described above, and a plethora of others implicated by specific license agreements, illustrate why both licensees and licensors need lawyers experienced in contract-drafting in general and license agreements in particular.