A licensing agreement is a formal, written contract between two parties in which the property owner authorizes the use of their brand, patent, or trademark by another party. The agreement between the licensor (the owner of the property) and the licensee (the allowed party) specifies the type of licensing agreement, the conditions of usage, and how the licensor is to be treated. The sort of contract depends on what is being licensed. Licensing agreements also help to resolve conflicts over sales, quality, and royalties.
Licensing agreements must explain how licensed parties may utilize properties in granular detail, including the following parameters:
- The geographic areas in which the property might be used.
- The amount of time that parties have to utilize the property.
- A particular arrangement’s exclusivity or non-exclusivity.
- Scaling terms, which state that if the property is utilized a certain number of times, further royalty costs will be payable. A book publisher, for example, may sign into a license arrangement with another party to use a piece of artwork on the hardcover versions of a book but not on later paperback editions. It’s also possible that the publisher won’t be able to use the creative image in some advertisements.