IP licence agreement
How to review an IP or software licence agreement
In a licence agreement, define exactly what is licensed, whether it is exclusive, for which field, territory and term, and how royalties are calculated. Check sublicensing rights, ownership of improvements, audit rights and what happens on termination.
Legal background
- Copyright, trademark and patent law of the relevant jurisdictions
- Registration or recordal requirements for trademarks and patents
- Competition law limits on exclusivity and restrictions
Main risks
01Scope of rights is unclear
The licensed IP, versions, field of use and territory are described loosely, so unlisted uses are not covered.
02Exclusive in name, not in practice
Licence is called exclusive, but the licensor keeps the right to use or license others, or exclusivity is limited to a narrow field.
03Royalty base and audit
Royalty is based on a vague “net sales” definition with wide deductions, and the licensor has no clear audit right.
04No sublicensing right
You cannot involve affiliates, contractors or channel partners without consent.
05Improvements and grant-backs
All improvements automatically belong to the licensor, or you are forced to license yours back for free.
06Termination and survival
Licensor can terminate for minor breaches and there is no sell-off period or transition for end users.
Example finding and redline
Clause in the contract
“Licensor grants Licensee a licence to use the Software.”
Why it is risky
No field, territory, term or exclusivity. A court may read the licence narrowly.
Suggested fix
“Licensor grants Licensee a non-exclusive, non-transferable licence to use the Software in the Territory for the Term for internal business purposes.”
Pre-signing checklist
- Licensed IP, versions and field of use are listed
- Exclusivity: what is excluded, including the licensor
- Territory and term; renewal conditions
- Royalty base, rate, minimums, reporting and audit
- Sublicensing and assignment rules
- Ownership of improvements and feedback
- Warranties of title and non-infringement; indemnity
- Termination triggers, cure periods and post-termination rights
FAQ
- What is the difference between exclusive and sole licences?
- An exclusive licence excludes everyone, including the licensor. A sole licence excludes everyone except the licensor. Check which one the contract actually grants.
- Does a licence need registration?
- For some rights, such as trademarks and patents, local law may require recordal for the licence to be effective against third parties or valid. Check the rules of the territory.
This material is for general information and is not legal advice. Rules differ by jurisdiction; have a lawyer review any significant contract before you sign.