A licence is permission to use someone else’s intellectual property, such as a patent, trade mark, copyright work or confidential know-how, without the owner transferring it to you. The single most important commercial question in any licence is who else can use the same rights. English law and practice use three labels for the answer, and the difference between them is often misunderstood.
Non-exclusive licences
A non-exclusive licence lets you use the IP but leaves the owner (the licensor) free to use it too and to license it to as many other people as it likes, including your competitors. Most software licences and brand licences for promotional use work this way. They are simpler to agree and usually cheaper, but you get no protection from competition using the same rights.
Sole licences
A sole licence sits in the middle. The licensor promises not to license anyone else, but keeps the right to use the IP itself. If you are paying for protection from competitors, check whether you are getting a sole licence when you thought you were getting an exclusive one, because the licensor may be your biggest competitor.
Exclusive licences
An exclusive licence shuts out everyone else, the licensor included, within whatever scope the licence sets. For copyright, the Copyright, Designs and Patents Act 1988 defines an exclusive licence in exactly those terms and requires it to be in writing and signed by or on behalf of the copyright owner. If the document doesn’t exclude the licensor, it may not be an exclusive licence in the legal sense, whatever the heading says.
The label matters beyond competition. An exclusive licensee of a patent has the same right as the owner to bring infringement proceedings under the Patents Act 1977, and an exclusive copyright licensee has similar rights under the 1988 Act. Under the Trade Marks Act 1994 an exclusive licensee can sue in its own name only if, and to the extent that, the licence gives it that right. Sole and non-exclusive licensees generally have to rely on the owner to act, so the licence should say whether the owner must take action against infringers and who pays. Licences of registered patents and trade marks should also be registered at the Intellectual Property Office, as failing to do so can affect your rights against third parties and your ability to recover costs.
Exclusivity can be limited by territory and field of use
Exclusivity doesn’t have to be all or nothing. A licensor can grant exclusive rights for one country or one application and keep the rest. Imagine a patented coating process licensed exclusively to one company for textiles and to another for car parts. Each licensee is protected in its own field, and the licensor earns twice. Where the lines are drawn needs care, because vague boundaries cause disputes and some territorial restrictions raise competition law issues.
When exclusivity makes sense
Exclusivity is usually worth paying for when you are investing heavily in developing, manufacturing or marketing the product and could not recover that investment if a rival licensee turned up next year. From the licensor’s side, it means putting all its eggs in one basket, so it will normally want a higher royalty, a minimum royalty or sales targets, and the right to end or downgrade the exclusivity if you don’t perform.
Questions to ask before you sign
Check which of the three types you are actually being granted and whether the wording matches the label. Ask whether exclusivity covers the whole territory and every field, or only part of them, and whether the licensor keeps any rights to use or license the IP itself. Find out what performance targets apply and what happens if you miss them: does the licence end, or does it just become non-exclusive? Finally, look at who deals with infringers and whether you can sublicense.
Upload your licence agreement to QuickLegalCheck for a plain-English report on the grant, the exclusivity terms and the points worth raising before you sign.
Related: what the licence agreement review covers, and a complete sample report.