Every IP licence has limits, and two of the most important are territory (where the licensee can use the IP) and field of use (what it can use it for). Together they decide whether the licensee can move into a new country, sell online to overseas customers or take the technology into a new product line. They also let a licensor divide the same IP between several licensees, which is why they tend to matter most in exclusive licences.
Territory: where the rights apply
A territory can be worldwide, a group of countries, a single country or a region within one. The drafting needs more care than it looks. “The United Kingdom” includes Northern Ireland but not the Isle of Man or the Channel Islands, and “Great Britain” leaves out Northern Ireland. “Europe” could mean the EU, the European Economic Area or the continent, and those lists change. The safest approach is to list the countries, or to attach a map for anything smaller than a country.
The licence should also say what the territory restricts. It might limit where you can manufacture, where you can sell, where you can market, or all three. It is common for a licensee to be allowed to make products anywhere but sell only in its territory, and the licence needs to say so if that is the deal.
Field of use: what the rights can be used for
A field of use limits the purposes, products or markets the licence covers. A patent might be licensed for medical devices but not for veterinary products, or a brand licensed for clothing but not homeware. Field limits let a licensor license the same IP to different businesses in different sectors, and let a licensee pay only for what it needs.
Most disputes here come from a field defined in loose or abstract terms, such as “consumer applications”, that one party later reads more widely than the other. Define the field by reference to specific products or industry categories, give examples of what is in and what is out, and say who decides when a new product sits on the boundary.
Active and passive sales
Territorial limits run into online selling. An active sale is one you go out and seek, for example by targeting advertising at customers in another licensee’s territory. A passive sale is one where the customer finds you unprompted, such as an overseas customer who comes across your website and places an order. Licences often try to stop both, but competition law treats them differently, so the licence should use these terms deliberately rather than banning all sales outside the territory.
Competition law limits
Territorial and customer restrictions in a licence can fall within the Chapter I prohibition in the Competition Act 1998, which prohibits agreements that restrict competition in the UK. A provision that infringes the prohibition is void, and the parties can face fines. Whether a particular restriction is a problem depends on the facts, including the parties’ market shares and whether they compete with each other.
Two block exemptions give a safe harbour for many agreements. Licences of technology such as patents, know-how and software copyright may be covered by the Competition Act 1998 (Technology Transfer Agreements Block Exemption) Order 2026, which came into force on 1 May 2026. Brand and other IP licences that form part of a supply or distribution arrangement, such as a franchise, may be covered by the Competition Act 1998 (Vertical Agreements Block Exemption) Order 2022. Both depend on market share thresholds, and both treat certain restrictions as “hardcore”. In broad terms, stopping a licensee or distributor from making passive sales outside its territory is generally hardcore, subject to limited exceptions, while restricting active sales into a territory reserved to the licensor or to another exclusive licensee is often allowed. A hardcore restriction takes the whole agreement outside the block exemption, so this is worth checking with a competition specialist if the licence is important or either party has a large share of its market.
What to check in your licence
Make sure the territory is a clear list, the field is defined by reference to real products, and the licence says whether the limits apply to making, selling, marketing or all three. Check how online sales and customers who approach you from outside the territory are treated, and whether there is any route to extend the territory or field later, such as a right of first refusal. If the licence contains no such route, assume there isn’t one.
Upload your licence to QuickLegalCheck and the report will flag unclear territory and field definitions and sales restrictions worth raising before you sign.
Related: what the licence agreement review covers, and a complete sample report.