Tom Pedreira
A license is really nothing more than a contractual right that gives someone permission to engage in a defined activity or to use certain property that is owned by someone else.
Licenses have taken on special significance as the universal means to protect "proprietary" (ownership) rights in software and other computer products. A license allows the holder of intellectual property rights (the "licensor") to make money from an invention or creative work by charging a user (the "licensee") a fee or royalty to use the licensed product.
Where Do I Start?
There is no magic to giving someone a license to use your property. In business, a written license agreement is essential to enforce your rights, but it doesn't have to be long or complicated in order to be enforceable.
Before you even get to the point of negotiating a license agreement, though, it's extremely important to make sure that you first have the exclusive rights to that property. While the law is constantly evolving in this area, the best way to lock in exclusive rights to intellectual property is to register for any or all of the following that may apply to your situation:
- Copyrights - original works of authorship fixed in any tangible medium of expression
- Patents - inventions
- Trademarks -- words, names or symbols that identify goods made or sold, and that distinguishes them from goods made or sold by others
Applying for a copyright, patent or trademark registration can involve a rigorous approval process that requires you to disclose your idea to the public at large. So you may also want to further protect your intellectual property by relying on trade secret laws. Generally, these laws protect internally guarded ideas, formulas, codes or other information that provides a business with a competitive advantage. Source code to software is a good example of something that would be a trade secret.
What Do I Include In a Licensing Agreement?
You don't necessarily have to reinvent the wheel in drafting a license agreement. Although you shouldn't copy them, you can certainly look at existing agreements other companies have used in order to get an idea of what you need to do. One place to starting looking, for example, would be license agreements used for all of the programs on your computer.
The first thing a license agreement should do is to clearly define the scope of the license. By licensing a product, you are assigning a limited right to use that property, so you must be sure to retain the ultimate ownership rights. At the same time, you don't want to be overreaching or too limiting so as to discourage potential customers from using the product.
Except for custom-made products, a license agreement would typically be non-exclusive, meaning that the licensor can sell the same rights to other users. However, this wouldn't necessarily allow the licensee to reproduce or pirate the product and sell it to third parties. Sometimes, licenses allow reproduction within a controlled environment such as with enterprise licenses or network licenses. In other cases, a licensor may allow for a resale license, with a royalty being paid to the licensor.
Next in importance are provisions controlling revenue streams generated by licensed products. With most license agreements on end user software for consumers, for example, a one-time license fee is usually paid when the software is purchased. Other arrangements may include recurring payments such as royalties or monthly lease payments. License agreements may also cover maintenance charges such as ongoing maintenance. Other topics to cover include:
- Term (the length of the agreement)
- Rights to modify and combine with other products, if any
- Prohibited uses
- Rights to transfer and sublicense
- Rights to source code
- Acceptance, testing and training procedures
- Warranties
- Limitations on the licensor's liability
- Support and maintenance services
- Nondisclosure of confidential Information
- Indemnity for infringement
- Enforcement of remedies
- Terminating the contract
How is a Licensing Agreement Enforced?
In addition to protections of a license agreement, federal laws (including the Digital Millennium Copyright Act) provide stiff civil and criminal penalties for pirating and other unauthorized use of software. It may be possible, for example, for a licensor to get an injunction and monetary damages. The licensor may then receive actual damages, which includes the amount lost because of infringement, plus any profits attributable to the infringement.
In addition, the government can criminally prosecute you for copyright infringement. Penalties can include up to five years in prison and a fine of up to $500,000. Second-time offenders risk 10 years of prison and a $1,000,000 fine.
Legal Guidance
Many issues may come in the course of drafting a license agreement, and the laws relating to intellectual property can be extremely complicated. You should involve legal counsel in the drafting of a license agreement, as well as enforcing issues that may arise with agreements already in place.