Creating a Licensing Agreement

06/09/2023

29 min

Note: Links to our free templates are at the bottom of this long guide.
Also note: This is not legal advice

Introduction

Creating a well-crafted licensing agreement is essential for protecting intellectual property and establishing legal certainty. Failure to do so can lead to costly disputes or infringement, while a properly drafted agreement can provide financial benefit to the licensor. But how do you go about creating a successful license? The ��Ƶ team have compiled an easy-to-follow guide with everything you need to know, plus access to our free template library.

A licensing agreement is an important contract between two parties that outlines the terms and conditions of their license. This could include the use of patents, trademarks, copyright, trade secrets or physical goods such as software or hardware products. Having a clear agreement ensures that both parties understand their responsibilities and limits any potential for conflict in the future - not least financially, as it allows the licensor to set fees for its services or products in exchange for usage rights.

Moreover, such an agreement provides transparency and clarity around each party’s rights and obligations - allowing them to avoid expensive litigation if something goes awry. In addition, it safeguards against unauthorised use of intellectual property by setting out clearly what is allowed under the license and any restrictions on usage privileges. What’s more, this helps protect the licensor from exploitation of their IP - be it intentional misuse or negligence on behalf of another party using its resources without permission.

At ��Ƶ we understand how important it is for businesses large and small alike to understand their contractual commitments when signing off on a new license deal - which is why we are dedicated to helping people draft high quality legal documents without needing legal expertise themselves. Our community template library provides millions of data points which help teach our artificial intelligence (AI) algorithms what constitutes a market standard licensing agreement; making drafting your own contracts simpler than ever before!

Through this guide you can read on for more information about writing your own licensing agreements but no matter what method you choose be sure not take chances with something as critical as protecting your business’ IP! For more step-by-step guidance plus free access to our template library head over now at gnieai/licensingagreements/.

Definitions

Licensor: The person or company granting another party the right to use their property or services.

Licensee: The person or company receiving permission to use the property or services of another party.

Intellectual Property Rights: Legal rights that protect creative works, such as copyrights, trademarks, and patents.

Geographic Restrictions: Limitations on where the licensed materials can be used.

Subject Matter Restrictions: Restrictions on what types of products or services the licensee can produce with the licensed materials.

Restrictions on Use: Requirements for attribution, restrictions on modifications, or prohibitions on creating derivative works.

Start Date: The date on which the license is granted and the licensee can begin using the licensed materials.

End Date: The date on which the license expires and the licensee must cease using the licensed materials.

Payment Amounts and Schedule: The amount of any royalty payments and any other fees.

Applicable Taxes: The taxable rate, and any additional requirements for calculating and paying taxes.

Late Payment Fees: Any fees for late payment, and any additional requirements for calculating and paying late fees.

Warranties: Guarantees of quality or performance, such as warranties of non-infringement, merchantability, or fitness for a particular purpose.

Indemnification Obligations: The licensee’s obligation to indemnify the licensor for any claims arising from their use of the licensed materials.

Limitation of Liability: A cap on damages or an agreement to limit liability for consequential or incidental damages.

Termination and Renewal Provisions: The conditions for terminating the agreement, as well as any options for renewal or extension.

Dispute Resolution: The process for resolving disputes, such as mediation, arbitration, or other forms of alternative dispute resolution.

Governing Law and Jurisdiction: The law and jurisdiction to be used to interpret the agreement, as well as the jurisdiction in which any disputes will be heard.

Notice and Communication Requirements: Requirements for sending notices and other communications, such as via email, certified mail, or other methods.

Signature Block: Space for the parties to sign, as well as any additional information required for execution.

Authentication Methods: Wet signatures, electronic signatures, or other methods of authentication.

Notarization: Requirements for notarizing signatures, or any other additional steps required for execution.

Establishing the parties to the agreement
Agreeing on a name for the agreement
Identifying the licensor and licensee
Setting out the contact information for each party
Defining the scope of the license, including any restrictions
Outlining the types of rights to be licensed
Setting out any geographic and subject matter restrictions
Describing any restrictions on use of the licensed materials
Setting out the duration of the agreement
Establishing a start date
Establishing an end date
Providing any options for renewal or extension
Outlining the payment terms, including any royalties and fees
Defining the payment amounts and schedule
Accounting for any applicable taxes
Specifying any applicable late payment fees
Describing any warranties, indemnities, and limitations of liability
Outlining any warranties provided by the licensor
Setting out any indemnification obligations
Limiting any liability of either party
Setting out the termination and renewal provisions
Defining the conditions for terminating the agreement
Providing any options for renewal or extension
Providing for dispute resolution
Setting out the process for resolving disputes
Describing the applicable law and jurisdiction to be used
Outlining the governing law and jurisdiction
Specifying which law will apply to the agreement
Setting out which jurisdiction will be used for any disputes
Providing for notice and other communication requirements
Outlining how notices and other communications must be sent
Specifying any requirements for response times and formats
Including a signature block and other execution details
Establishing a signature block
Describing the necessary signatures or other authentication methods
Setting out any additional requirements, such as notarization

Get started

Establishing the parties to the agreement

Identify both parties to the agreement, which includes the licensor and licensee
Gather the contact information, such as name, address, and phone number of both parties
Confirm that both parties have the legal right to enter into the agreement
When all parties have been identified and contact information has been provided, you can move onto the next step of agreeing on a name for the agreement.

Agreeing on a name for the agreement

Brainstorm a name for the agreement that accurately reflects the purpose and the parties involved.
Consider using the name of the licensee and the licensor in the agreement title.
When you have settled on a name that adequately reflects the purpose and nature of the license, you can proceed to the next step.

Identifying the licensor and licensee

Establish who is the licensor and who is the licensee.
The licensor is the party granting the license and the licensee is the party receiving it.
Make sure to include full legal names, addresses and contact information of both parties.
Make sure that the licensee has the authority to enter into the agreement.
Once the licensor and licensee are identified and the contact information is included, the step is completed.

Setting out the contact information for each party

Identify the full names, addresses and contact information of the licensor and licensee.
Include their registered business addresses and contact details, such as email and telephone numbers.
Both parties should keep this contact information up to date, and notify the other party of any changes.
When both parties have supplied their contact information, you can check this off your list and move on to the next step.

Defining the scope of the license, including any restrictions

• Identify the specific good or service that will be licensed and the geographic area where the license will apply.
• Specify any limitations on the use of the good or service, such as the type of industry or use, number of users, etc.
• Set out any limitations on the duration, termination, or renewal of the license.
• Specify any special conditions that must be met in order for the license to remain in effect.

You will know that you have completed this step when you have identified the specific good or service to be licensed, specified any limitations on the use of the good or service, set out any limitations on the duration, termination or renewal of the license, and specified any special conditions for the license to remain in effect.

Outlining the types of rights to be licensed

Identify the type of rights that need to be licensed, such as Intellectual Property, Distribution, or End-User rights
Decide which of these rights need to be included in the agreement
Make sure that the rights all fit within the scope of the license that was already defined
When you have finalized the list of rights, add them to the agreement
Check off this step when it is complete and you have added the rights to the agreement

Setting out any geographic and subject matter restrictions

Consider whether the license should be restricted to certain geographic locations
Determine if the scope of the license should be limited to certain subject matter
Specify any geographic or subject matter restrictions in the licensing agreement
Include language that prevents the licensee from using the licensed materials in any other geographical location or for any other subject matter
When finished, you should have a clear understanding of any geographic and subject matter restrictions that apply to the license agreement.

Describing any restrictions on use of the licensed materials

Identify any restrictions on the use of the licensed materials.
Include restrictions on copying or modifying the materials, as well as restrictions on using the materials in any way that might be considered to be in violation of the rights of any third party.
Be sure to consider any trademark or copyright restrictions that may apply to the materials.
Include any restrictions that are required by the licensor.
Once you have listed all applicable restrictions, make sure to clearly state that any use of the materials outside of the restrictions is strictly prohibited.
When complete, you can move on to setting out the duration of the agreement.

Setting out the duration of the agreement

Decide the duration of the agreement and specify it in the contract
Ensure the length of the agreement is reasonable and appropriate for the type of license granted
Note that the duration of the agreement can be different for different types of licenses
Include a provision for automatic renewal of the agreement unless otherwise specified
Include a provision for early termination of the agreement if either party breaches the agreement
Ensure that any renewal clause also includes the option for either party to terminate the agreement
You can check this off your list once you have included all the necessary provisions for the duration of the agreement in the contract.

Establishing a start date

Decide on a start date that works for both parties
This date should be listed in the agreement
Make sure that this date is within the duration of the agreement
Once the start date is established, it can be documented in the agreement and you can move on to establishing the end date.

Establishing an end date

Decide and specify an end date of the agreement in the contract
Specify any options for renewal or extension, if applicable
Make sure to include a clause in case there are any changes to the end date
You can check this off your list once you have specified the end date of the agreement and included any relevant clauses.

Providing any options for renewal or extension

Determine if either/both parties would prefer to have the agreement automatically renew itself unless either party terminates it
If so, include language about how much notice must be given for termination
Set the renewal period, such as annually or every two years
Spell out the conditions for any extension of the term, such as if the licensee is in breach of the agreement
Make sure any extension terms are clear and agreed upon by both parties
Once all of the conditions are met and both parties are in agreement, the step is complete and you can move on to the next step.

Outlining the payment terms, including any royalties and fees

Outline the payment terms, including any royalties and fees that need to be paid
Specify the duration of the license
Decide whether the licensee will pay a one-time fee or a recurring fee
Determine whether the licensee will need to pay any additional fees in the event of any changes to the license
Include any applicable tax-related information
When you are satisfied with your payment terms, you can move on to the next step of defining the payment amounts and schedule.

Defining the payment amounts and schedule

Determine the amount of money that the licensee will pay the licensor, including any initial payments and any ongoing payments.
Set up a payment schedule for all payments, including when and how often payments will be made.
Make sure all payment amounts and payment schedule are clearly outlined in the agreement.
You will know you have completed this step when you have finalized the payment amounts and schedule and have included it in the licensing agreement.

Accounting for any applicable taxes

Research and understand the types of taxes that may be applicable to the licensing agreement
Consider the tax implications of any discounts or offers that may be included in the agreement
Include a clause in the agreement describing the process of calculating and collecting taxes
Specify the party responsible for remitting taxes to the appropriate authorities
When everything is accounted for and included in the agreement, you can check this off your list and move on to the next step.

Specifying any applicable late payment fees

Review the terms of the agreement to determine if late payment fees should be included
If late payment fees should be included, consider the amount and when it will be applied
Specify the late payment fees in the agreement, including the amount and when it will be applied
Check to make sure that the late payment fees are reasonable and not subject to any laws that could make them unenforceable
Once the late payment fees have been specified, the step can be checked off the list and the next step can be completed.

Describing any warranties, indemnities, and limitations of liability

Determine if any warranties or representations are to be included in the agreement
Identify any warranties, indemnifications, and limitations of liability that the licensor will be providing
Specify whether the licensor is responsible for any damages that arise from the use of the license
Set out any limitations of the licensor’s liability for any losses or damages that arise from the agreement, including any indirect or consequential losses
Note any disclaimers of warranties and limitations of liabilities
Make sure that the limitation of liability language is clear and understandable
Check to ensure that the indemnity and warranty language is compliant with applicable law
When you have included all of the desired warranties, indemnities, and limitations of liability, you can move on to the next step.

Outlining any warranties provided by the licensor

Identify what warranties the licensor is willing to provide to the licensee
Include any warranties the licensor makes about the quality of the product or service
Specify the duration of any warranties provided by the licensor
Include any disclaimers of warranties that the licensor wants to make
Describe any remedies available to the licensee in the event of a breach
When complete, review the warranties section to ensure it meets the requirements of the agreement and the licensor’s needs
When complete, you can move on to the next step of setting out any indemnification obligations

Setting out any indemnification obligations

Have both parties agree to the terms of the indemnification
Outline any obligations or restrictions that each party has to indemnify the other for damages or losses due to breach of the agreement
Consider any third-party claims that may arise and how the parties will address them
Specify the amount that the indemnifying party will be responsible for in covering the losses or damages
Include a clause in the agreement that states that the indemnifying party must pay for the other party’s legal costs
Make sure to clearly state the period of time that the indemnification obligations will remain in effect
When these steps are completed, you can check this off your list and move on to the next step, which is Limiting any liability of either party.

Limiting any liability of either party

Outline any limitation of liability for all parties involved in the agreement
Describe the types of damages that are excluded from the limitations to ensure that all parties are protected
Establish the maximum liability that would be accepted in the event of any breach of the agreement
Specify the time frame of the limitations of liability
Ensure that all language is specific, clear, and timely
When complete, check off this step and move on to the next step of setting out the termination and renewal provisions.

Setting out the termination and renewal provisions

Outline the conditions that will trigger the automatic termination of the agreement
Specify the amount of notice that must be given before the agreement is terminated
Provide the option for either party to renew the agreement when it is about to expire
Establish a timeline for when the agreement will be renewed if either party wishes to extend it
Determine the terms of the agreement if the parties decide not to renew it

Once you have set out the termination and renewal provisions, you can move on to the next step of defining the conditions for terminating the agreement.

Defining the conditions for terminating the agreement

Determine the conditions that would allow either party to terminate the agreement without penalty, such as a material breach or the expiration of the term.
Specify what the parties must do if they wish to terminate the agreement.
Specify any restrictions on termination, such as advance notice requirements.
Include a clear statement of the obligations of the parties when the agreement is terminated, such as any obligations to return proprietary information or other materials.
Establish a process for dispute resolution in case of any disagreements about the termination of the agreement.
Include a clause that states the agreement is binding on both parties’ successors and assignees.

You can check this off your list and move on to the next step once you have completed the steps above.

Providing any options for renewal or extension

Determine the terms of any potential renewal or extension of the agreement. This can include whether the licensee has the right of first refusal, for example.
Include explicit language in the agreement that gives the licensee the right to renew or extend the agreement.
Decide whether the licensee has the right to terminate the licensing agreement at the end of the initial term, or if they must request an extension.
Include the date or timeline for when the licensee must submit requests for renewal or extension into the agreement.
Specify any changes or modifications in the royalty rate or other provisions applicable to renewal or extended agreements.

Once you have determined the terms of renewal or extension, included the language in the agreement, and specified any changes or modifications, you can check this off your list and move on to the next step.

Providing for dispute resolution

Consider which dispute resolution method to use (arbitration, mediation, collaborative law, etc.)
Outline the procedures for dispute resolution and the timeline for resolution
Determine the location and jurisdiction for any dispute resolution
Describe the process for selecting the arbitrator or mediator
Identify the rules of evidence that will apply during the dispute resolution process
Decide who will bear the costs of the dispute resolution process
Set out any other provisions related to dispute resolution

Once you’ve outlined the procedures for dispute resolution and the timeline for resolution, determined the location and jurisdiction for any dispute resolution, described the process for selecting the arbitrator or mediator, identified the rules of evidence that will apply during the dispute resolution process, decided who will bear the costs of the dispute resolution process, and set out any other provisions related to dispute resolution, you can check this off your list and move on to the next step.

Setting out the process for resolving disputes

Determine which method of dispute resolution is most suitable for the agreement, such as arbitration, mediation, or litigation
If mediation is the chosen method of dispute resolution, establish the terms for a mediator, such as qualifications, fees, and responsibilities
If arbitration is selected, draft an arbitration clause that includes the rules for the arbitration process, such as the location of the arbitration, the number of arbitrators, and the applicable rules of procedure
Provide for a choice of law and/or jurisdiction to resolve any disputes related to the licensing agreement
Once all of the dispute resolution clauses have been added to the agreement, the document is ready to be signed
You have completed setting out the process for resolving disputes, and can now move on to the next step of describing the applicable law and jurisdiction to be used.

Describing the applicable law and jurisdiction to be used

Detail the applicable law and jurisdiction that you and the other party agree to abide by
For example, include the governing state, country, or international law
Make sure to include any disputes that may arise from the agreement and how they will be handled
Include the applicable court with jurisdiction over any litigation that may arise
When finished, review the agreement to make sure the applicable law and jurisdiction is clearly stated
Once verified, you can then move on to the next step: Outlining the governing law and jurisdiction

Outlining the governing law and jurisdiction

Research the applicable laws and regulations that will need to be followed in the jurisdiction where the agreement will be enforced.
Research court systems, rules, and procedures for the jurisdiction for when disputes arise.
Indicate in the agreement which laws and jurisdictions will be used for governing the agreement.
Ensure that the laws and jurisdictions are valid and accepted by both parties.
Once the applicable laws and jurisdictions have been outlined, the agreement should be reviewed by both parties.

You will know you can check this off your list and move onto the next step when both parties have reviewed the agreement and agree that the applicable laws and jurisdictions are accepted.

Specifying which law will apply to the agreement

Determine which governing law will be applicable to the agreement.
Consider any international laws or regulations that may apply, such as the applicable country’s intellectual property laws.
Ensure that the applicable law is clearly stated in the licensing agreement.
Once you have specified which law will apply to the agreement, you can move on to the next step.

Setting out which jurisdiction will be used for any disputes

Choose the jurisdiction that would be used if a dispute were to arise. This can be the state or country in which the agreement is being signed, or could be the state or country in which the business is registered.
Insert a clause specifying the chosen jurisdiction; include details such as the court to be used, the procedure to be followed, and any other relevant details.
Check that you have correctly specified the chosen jurisdiction and that both parties are in agreement with this choice.
Once you have completed this step, you can move on to the next step - providing for notice and other communication requirements.

Providing for notice and other communication requirements

Explain what will constitute sufficient notice or communication
Specify the method of communication (written or oral)
Outline who is responsible for sending the notices and communications
Determine if the notices and communications should be sent by email, fax or other method
Set a timeframe for when the notices and communications must be sent
Include a clause that addresses how the parties can change the method of communication
Include a clause that states that notices must be sent to the correct address
Include a clause that states that the parties must give each other advance notice of any changes that may affect communication requirements
Determine if notices and communications must be sent to any other parties, such as a lawyer or a third-party

When you have written out all the requirements for how notices and communications must be sent, you can check this off your list and move on to the next step.