License agreements are necessary for the parties on each side of the transaction. Licensors, the inventors of software, creators of design, or benefactors of brand recognition, can monetize their intellectual property. Licensees can use the authorship or invention of others without being accused of infringement.
A license agreement transfers the right to use and transforms infringement into a permitted act.
At the Hakim Law Group, our team of intellectual property attorneys is here to guide and support inventors, authors, and third-party users. We want the creators to feel confident in protecting their rights of ownership and want the third parties protected when paying for this right of use.
Under a license agreement, intellectual property becomes a commodity. The licensor can control where and how the licensee uses the product.
License Agreement
A license agreement is a negotiated contract where a licensor makes its intellectual property available for use by a licensee to promote its products and services. The licensee agrees to compensate the licensor for this right and use the property under the parameters outlined in the agreement. Each party has obligations and responsibilities to the other.
What are the Components?
Typically, there are six essential paragraphs in a license agreement:
- exclusivity,
- territory,
- license fee,
- royalties,
- guaranteed royalties, and
- sub-license rights.
Each component is negotiable from each party’s perspective, and any of the above components can be used as leverage against another to achieve a favorable result.
Exclusivity
A use can be exclusive or non-exclusive. The licensor has the prerogative to extend this right to one or more users—the more exclusive the use, the more valuable the license to use. When a licensee is granted exclusive use, it may be able to bring infringement claims in its name.
Territory
A license agreement can cover a specific state, the entire United States, or one or more countries. The broader the territory, the more valuable the license is to the licensee, as it allows for sales to a larger customer base.
License Fee
It is common to pay an upfront fee to obtain a license; this fee is subject to negotiation, and can be credited against future royalties or be a stand-alone fee to initiate the process and cover the licensor’s start-up costs.
Royalties
Royalties are paid to the licensor as a percentage or a flat fee of the licensee’s benefit. These payments cover a set period and must accompany reports supporting the calculations. The license agreement will set forth the formula and the report’s contents. Royalties are a portion of the income generated by the licensee from the use granted in the license agreement.
Guaranteed Royalties
A licensor may require a guaranteed royalty payment if a licensee holds the right to use but does not generate adequate income to render the agreement profitable for the licensor for any given period of time. A guaranteed minimum is usually an amount to cover the licensor’s costs plus a profit, and it is paid regardless of the licensee’s income. These guaranteed payments can be credited against the royalties from actual income.
Sub-Licenses
A sub-license authorizes a licensee to transfer some or all of its user rights under the license agreement. Sub-licenses can be structured so that the licensor collects royalties from each licensee or from the aggregate sales of the licensee under the base agreement. Typically, a licensee grants sub-licenses to third parties when its business grows enough to justify dividing its territory.
Interested in Learning More About License Agreements? Contact A Highly Experienced Business Attorney in Los Angeles Today
A license agreement grants the use of a software program, name, logo, design, melody, or any creation owned by the licensor to a third-party licensee. The users will leverage the creative work of others to promote and grow their businesses. The ideas and creations of one are monetized into a marketable commodity, and the license agreement sets the controls of the use and the value of it.
If you need advice or guidance in negotiating a license agreement, either as the creator or the third-party user, you need the experience of a Los Angeles firm specializing in this area of law.
Our team of skilled and highly reputable business attorneys in Los Angeles have worked at top-tier international law firms and served as general counsel to major companies. This high level of diverse legal and business experience is paramount to our boutique approach.
For additional information or to schedule an appointment, please contact The Hakim Law Group at 310-993-2203 or visit www.HakimLawGroup.com to learn more.
