Lawyer
Expert in international corporate, IT, and crypto law. Has extensive experience in business setup and support in the USA, EU, LATAM, and the Middle East. Specializes in corporate structuring, compliance, KYC/AML, IP, GDPR, as well as regulation of crypto and fintech projects.
License agreement
A license agreement allows the owner of intellectual property (IP) to monetize software, a trademark, design, content, or technology without fully alienating the rights. Prikhodko & Partners develop licensing models for IT companies, brands, franchises, and international groups. As part of our intellectual property services, we define permitted methods of use, the financial model, quality control, and protection against the licensee exceeding the scope of the license.
A license does not transfer ownership of the IP. It creates a limited permission, so the precision of the terms is of fundamental importance. If the contract does not define the territory, term, exclusivity, sublicensing, or royalty calculation method, the parties may understand the scope of the granted rights in completely different ways.
Key points
- A license agreement differs from the transfer of exclusive property rights.
- It is necessary to precisely define the object, methods of use, territory, and term.
- Exclusive, sole, and non-exclusive licenses create different levels of control.
- Sublicensing is permitted only within the scope authorized by the main contract.
- Royalties must have a clear base, reporting, and audit rights.
- For an international license, taxes, currency payments, and registration formalities are important.
When a business needs a license agreement
A license is used when the owner wants to permit the use of an asset but retain ownership. This is typical for SaaS, white-label products, software distribution, and the use of a brand, content, educational materials, design, or technologies within a group of companies.
If the goal is the complete sale of IP, an assignment agreement is needed. If the owner wants to control the methods, territory, term, and quality of use, a licensing model is usually more precise.
Main terms of a license agreement
- description and legal status of the IP object;
- type of license and level of exclusivity;
- specific methods of use;
- territory and term;
- right to or prohibition of sublicensing;
- amount, base, and terms of royalty payments;
- reporting, audit, and sales confirmation;
- quality control and brand use;
- termination of the license and consequences after termination.
Types of licenses and exclusivity
A non-exclusive license allows the owner to use the IP themselves and grant permissions to other parties. An exclusive license significantly limits the owner’s ability to issue other licenses in the agreed field. A sole license occupies an intermediate position and requires particularly precise wording.
Exclusivity can be limited by territory, client category, sales channel, or product type. This is often better than transferring global exclusivity to a licensee without minimum sales and a mechanism for reclaiming rights.
Table: what needs to be established
| Condition | Question for the parties | Risk without condition |
|---|---|---|
| Method of use | What exactly is permitted to be done with the IP? | Exceeding the expected model |
| Territory | In which countries is the permission valid? | Conflict between distributors |
| Royalty | From what base is the fee calculated? | Underpayment of fees |
| Sublicense | Can the right be transferred to third parties? | Loss of control over the chain |
| Termination | What happens after termination? | Continued illegal use |
Royalties, reporting, and audit
Royalties can be fixed, percentage-based, minimum guaranteed, or a combination. The contract must define the calculation base, exclusions, currency, documents, deadlines, and taxes. A percentage-based model requires regular reports and the right to verify the data.
If the licensee uses the IP in several products or sells through related parties, the contract must prevent artificial reduction of the royalty base.
How to prepare a licensing model
- Conduct an audit of IP ownership and restrictions from previous contracts.
- Define the business goal, market, channels, and level of exclusivity.
- Formulate the financial model and reporting rules.
- Agree on quality control, sublicensing, and termination consequences.
- Check the tax and registration requirements of the relevant jurisdictions.
Conclusion
A license agreement allows you to generate income from IP without selling the asset itself. However, its effectiveness depends on how clearly the limits of the permission and control over use are defined.
The lawyers at Prikhodko & Partners develop contracts for licensing software, trademarks, content, technologies, and white-label solutions, and also provide support for international royalty payments and negotiations with licensees. Contact our specialists to monetize your intellectual property safely and with maximum benefit for your business.
Calculate the cost of services
1 question
Do you already have a valid license agreement in place?
2 question
Do you need assistance with the legal processing of royalty payments?
3 question
Is the use of intellectual property rights planned outside of Ukraine?
How does a license differ from a transfer of rights?
A license grants permission to use, while ownership remains with the licensor. A transfer of rights changes the owner of the IP.
Can a license be granted without payment?
Yes, if this is permitted by law and explicitly stated in the contract. However, being free of charge must be formulated unambiguously.
Can a licensee grant sublicenses?
Only if permitted by the main contract and within the limits established by it.
Is it mandatory to specify the territory?
Yes, this is an important condition. If the territory is not defined, default legislative rules may apply, which might not align with the business goal.
Is it necessary to register a license agreement?
It depends on the object and jurisdiction. For some rights, registration is not a condition of validity, but it may be necessary or beneficial for third parties.
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