License Agreement – What it is, definition and concept

A license agreement is a commitment between two parties, through which one of them acquires the power to use and make decisions about an asset from the other.

Through a license agreement, two parties (known as the licensor and the licensee) establish an agreement about the use or economic exploitation of a specific right.

Thus, the agreements that cover licenses are identified with commitments to use a certain good (in most cases intangibles).

In the same way, license agreements are usually developed in previously defined periods of time.

A very common example of this type of agreement is the transfer of audiovisual rights related to large sporting events, as well as the exploitation of cinematographic material in cinemas.

Participants in a license agreement

By definition, every license agreement is entered into by two interested parties:

  • Licensor: It has the property of the asset to be transferred through the agreement. It usually offers this with a consideration of an economic type agreed for a defined time or in a single payment.
  • Licensee: Motivated by its precise economic activity of rights, images or technologies owned by third parties. It financially compensates them to be able to access said goods.

Main features of a license agreement

This type of agreement covers the rights of use, exploitation or enjoyment of a certain asset. This can be tangible (such as certain industrial machinery) or intangible (in the case of designations of origin or brand images).

In this sense, there are some main areas on which this contractual modality falls:

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Alternatively, any license agreement formally sets out the conditions under which the parties agree to the relationship.

Thus, it must define the agreed economic consideration and the time by which the power of exploitation is granted.

In addition, there are cases in which the provision also includes royalties or part of the possible future benefits that the licensee may receive.

As indicated above, the payment can be made on a single occasion or by establishing periodic fees.

On the other hand, this contractual modality is also very widespread among franchise relationships typical of large companies. Through them, they agree to the transfer of image, technology and know-how rights or recipes in the case of the hospitality industry.

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