A license is a contract under which the holder of intellectual property (licensor) grants permission for the use of its intellectual property to another person (licensee), within the limits set by the provisions of the contract. Hence, in business language, a license allows the licensor to make money from its intellectual asset by charging the licensee in return for its use. Licensing has a vital role in companies’ commercialization strategies, since there are significant advantages of licensing IP, creating a win-win situation for both parties.

What to consider in licensing?

Define the type of license

The type of license should be defined according to:

  • the business goals of the licensor
  • the products/services to be licensed
  • the target market conditions
  • the capabilities of the licensee

Exclusive License

  • Exclusive:
    only the licensee is able to use the licensed IP or technology (the licensor cannot use or license it);
  • Sole:
    the licensor agrees not to grant any additional licences but retains the right to make use of the licensed IP.

Non-Exclusive License

The licensee and the licensor can both use the licensed intellectual property or technology. The licensor is also allowed to negotiate further non-exclusive licenses with other companies.

Steps to enter Licensing Agreement

Licensing agreements are usually long term business partnerships. It is therefore common that before entering into such an agreement, carrying out a due diligence audit and signing preparatory agreements, such as Non-Disclosure Agreements (NDAs) or Material Transfer Agreements (MTAs) help both parties mitigate the risks during the negotiations and towards the licensing period.

Granted rights

the rights granted with the licensing agreement must be defined clearly. The licensee must carefully assess whether the rights included are sufficient for an optimal exploitation.


Right to sublicense:

if any, the licensee’s right to grant a sublicense must be stated in the license agreement.

  • Is the licensee free to select the sub licensee(s)? For example, licensors may allow the granting of sublicenses only for the affiliates of the licensee or companies pre-approved by the licensor.
  • Should the sublicense agreement establish determined conditions? Often, license agreements impose the sublicense agreement to establish as far as possible the same terms and conditions as those set out in the license agreement. In this way the licensor is able to control the sub licensee’s use of IP even though no direct contractual relation between the licensor and sub licensees exists. This takes on special importance when a percentage of royalties comes from sublicensing revenues. Some licensors may request to check the sublicensing agreement to see whether the terms and conditions of the license agreement are followed.
  • What happens when the license agreement comes to an end? For example, sublicense agreement(s) can terminate automatically, or the decision to maintain the agreement with the sub licensee can be left to the licensor etc.

especially in patent licensing, it is often the case that both parties can make improvements through further research or by developing know-how related to the licensed technology.

Therefore, it is highly recommended for the parties to clearly address the treatment of future improvements. The common practice is to grant mirror rights, that is, each party retains ownership but grants rights on its own improvements to the other.

The payment:

the amount, type and terms of payment together with the calculation of royalties (if applied) must be defined. Royalties may be calculated on the basis of a percentage of the sale price, profits made or a fixed amount per each product unit sold etc. If deductions are to be made (e.g. tax, delivery expenses) it is essential to clearly indicate them. The licensor can also define a “minimum amount of royalty” to protect himself, in case there are no revenues generated.


contractual assurances undertaken by both parties concerning specific facts must be stated.

Infringement acts:

parties should agree on how possible infringement acts against the licensed IP will be treated.

Governing law and settlement of disputes:

parties must agree on the law to be applied in case of any possible conflicts. Parties should also define how disputes are settled (directly in courts or via
ADR mechanisms).

Registration of the contract:

in some countries, registration of the licensing contract at the relevant patent office is necessary. Therefore, adding a clause on the responsibility (generally the licensee’s) for registration of the license agreement and payment of the relevant fees is advisable.

Steps to enter Licensing Agreement

Although licensing agreements need to be prepared with the assistance of lawyers and IP professionals, it is always best to be aware of the most relevant issues as well as the key IP clauses to be negotiated and included, before signing the agreement:

The form of the agreement:

written form is often necessary.

The term of the agreement:

the commencement, duration and termination of the contract must be clearly stated in the agreement. When defining the term, the expiration date, the market and the economic life of the IP to be licensed must be taken into account.

Identification of the IP:

the licensed IP must be clearly identified and accompanying IP must not be forgotten (e.g. when licensing a patent, corresponding know-how must also be licensed to carry out exploitation).

The type of licensing:

exclusivity or non-exclusivity must be clearly stated.

Geographical scope and field of use:

the geographical scope of the license (i.e. where the licensee can exploit the IP), should be clearly defined. In addition, the licensor can limit the field of use of the licensed IPR as well as the goods and services for which the license is granted (in the case of trade mark licenses).