A licence grants a party the legal right to use a product owned by someone else. As a licensor or a licensee, here are some tips you should consider when negotiating your next licence agreement.
- Exclusivity. Will the licence be exclusive or non-exclusive? As a licensor, don’t limit yourself to granting an exclusive licence unless you are being properly remunerated.
- Term. Will the term be perpetual or limited? Consider limiting an exclusive licence to a specific period so you have the flexibility to re-negotiate its conditions.
- Limitations. What limitations (if any) will the licence impose on the licensee? These may include geographical boundaries or usage limits. As a licensee who is also a service provider, ensure you are granted the right to sub-license to your customers where necessary.
- Intellectual property. The intellectual property in a licensed product is usually retained by the licensor. If the licensee has the right to enhance or modify the product, consider which party owns the intellectual property in the enhancements or modifications.
- Fee. Will a licence fee apply, or will the licence be royalty-free? Perpetual licence fees should ideally be paid upfront. Consider any termination fees if the licence is terminated prior to the expiry date.
- Termination. Clearly draft the circumstances under which a licence may be terminated. Even an ‘irrevocable’ licence may be terminated for breach.
- Escrow. For software licences, it’s a good idea for a licensee to require the source code of any business critical software to be held in escrow in case the licensor goes out of business.
- Spelling. Americans call it a "license"; here it's a "licence". Except when you're using it as a verb…