Before you sign
An IP licence gives someone permission to use intellectual property (a trade mark, a patent, software, content, a design or know-how) without the owner giving up ownership. The agreement sets out what is licensed, what the licensee may do with it, where and for how long, whether anyone else can have the same rights, what is paid, and what happens when it ends.
Licensees tend to get caught by a scope narrower than they thought: internal use but not products for sale, one territory but not the markets they want, the right to use software but not to modify it. They also get caught by minimum royalties payable however sales go, and by termination rights that let the licensor end things at short notice after they have built a product around the IP. Licensors tend to get caught by the opposite: loose scope, no control over quality, no right to audit royalty reports, and no say over sub-licensing.
The review reads the licence from your side, as licensor or licensee, rates each clause, flags what’s missing and suggests wording to ask for. The full report is £49 + VAT.
Why it’s worth checking
Licences are often signed on the strength of a short commercial conversation, with each side filling in the gaps in its own favour. Licensees assume they can do more than the wording allows; licensors assume they have more control than it gives them. The difference only shows up later, usually when money or a product launch depends on it.
Modification is a common example. Say a software company licenses a code library to “use the software in its products” and then adapts it heavily. For copyright works, including software, making an adaptation is generally something only the owner can permit, so where the licence says nothing, silence tends to help the licensor rather than the licensee. There are narrow statutory exceptions for software users, but they aren’t a safe basis for development work. If you need to modify, combine or build on the IP, the licence should say so.
Territory is another. Trade marks and patents are territorial: a UK registration protects the brand or invention in the UK, not elsewhere. A licence described as “worldwide” can be worth much less than it sounds if the underlying rights are registered in only a few countries, and a licensee planning to expand should check where the rights actually exist, not just what the licence says.
For licensors, the main concern is control. A trade mark licence with no quality standards and no right to inspect lets a licensee put the brand on products you would never have approved, and uncontrolled use that misleads the public can in some cases put the registration itself at risk. Sub-licensing is part of the same question: if the licensee can pass rights on without consent, you lose control of who is using your IP, possibly including a competitor.
Improvements need thought on both sides. If the licensee develops something better on top of the licensed IP, who owns it? A licensor may want ownership or a free licence back; a licensee will want to keep what it built. There’s no single right answer, but the licence should give one.
Finally, termination. The licensee needs to know how much notice it gets, whether it can sell off existing stock, and what happens to customers already using products that include the IP. The licensor needs a clean right to terminate for non-payment or breach, and clear obligations on the licensee to stop using the IP and return materials.
Key terms to look for
Scope of licence
Exactly which IP is licensed and what the licensee may do with it: use, copy, modify, make and sell products, or use internally only.
Exclusive, sole or non-exclusive
Whether the licensee is the only one allowed to use the IP (sometimes excluding even the owner), shares it with the owner only, or is one of many licensees.
Territory and duration
Where the licence applies and for how long, including any renewal terms. Trade marks and patents only give protection in the countries where they are registered or granted.
Royalties and payment
Upfront fees, royalty rates and how they are calculated, minimum payments, reporting obligations and the licensor’s right to audit.
Sub-licensing
Whether the licensee can grant rights to others, such as group companies, contractors or customers, and whether consent is needed.
Quality control
Standards the licensee must meet and the licensor’s right to inspect, which matter most in trade mark and brand licences.
Improvements and modifications
Who owns improvements either party makes to the licensed IP, and whether the other side gets a licence to use them.
Termination and reversion
When each side can end the licence, and what the licensee must stop doing afterwards, including any sell-off period for existing stock.
Common mistakes
Scope of licence that is too narrow or ambiguous
If the licence doesn’t say clearly what the licensee can do, disputes follow about whether it can modify the IP, combine it with other products, sell to customers or only use it internally. Where the wording is unclear, the licensee may find it has been infringing the very rights it is paying for.
No sub-licensing restrictions or controls
If the licensee can sub-license freely, the licensor loses control over who uses the IP. If sub-licensing is banned outright, a licensee that needs to let group companies, contractors or end customers use the IP may be in breach. The licence should say who can be sub-licensed, on what terms, and whether consent is needed.
Royalty structures that do not align with success
Minimum royalties payable regardless of sales can make a licence uneconomic for a licensee in its early years. Licensors, on the other hand, need a minimum return where they have granted exclusivity. Tiered rates, minimums that start later, or the right to convert an exclusive licence to non-exclusive if minimums aren’t met can balance both sides.
No clarity on improvements and derivative works
If the agreement is silent, ownership of improvements follows the general law, and disputes arise when one side wants to use them and the other claims them. The licence should say who owns improvements made by each party and whether the other gets a licence to use them.
Territory or field of use restrictions that are too limiting
A licence confined to a narrow territory or field of use (for example, one product category or one industry) may not support the business the licensee plans to build, and expanding later will need the licensor’s agreement, usually at a price. Licensees should match the territory and field to their real plans before signing.
Best practice
If you are the licensor, define the licensed IP and the permitted use precisely, and say whether the licence is exclusive, sole or non-exclusive, for which territory and for how long. Build in reporting and an audit right so you can check royalty calculations. For trade marks and brands, include quality standards and a right to inspect. Decide whether sub-licensing is allowed and on what conditions, say who owns improvements, and make sure you can terminate for non-payment or serious breach, with clear obligations on the licensee to stop using the IP afterwards.
If you are the licensee, check the scope covers everything you actually plan to do, including modifying, combining and selling. Make sure the territory and field of use match your plans and that the underlying rights exist where you need them. Check the term is long enough to recover your investment and what happens on renewal, including whether royalties can rise. Look hard at minimum royalties, make sure you can sub-license where your business needs to, and protect the improvements you create. Ask for a reasonable notice period and a sell-off period on termination, and a warranty that the licensor owns the IP and has the right to license it.
Questions
What does “exclusive licence” mean?+
In UK usage, an exclusive licence normally means the licensee is the only person allowed to use the IP in the licensed field and territory, and that excludes even the owner. A sole licence means the owner won’t license anyone else but can still use the IP itself. A non-exclusive licence lets the owner license as many people as it likes, including competitors. Because these words aren’t always used consistently, check what the agreement actually says the licensor can and can’t do. An exclusive licensee may also have the right to bring infringement proceedings itself, depending on the type of IP and the wording.
Can I modify IP I have been licensed?+
Only if the licence allows it, or a legal exception applies. For copyright works, including software, adaptation is generally an act the owner controls, so if the licence is silent you should assume you need permission. There are limited statutory exceptions for lawful users of software, such as correcting errors where necessary for its intended use, but they don’t cover general development. If you need to modify or build on the IP, get that right written into the licence, along with who owns the result.
What happens to the IP when the licence terminates?+
The rights go back to the owner and the licensee must normally stop using the IP. Beyond that, it depends on the agreement. Some licences require the licensee to stop immediately and return or destroy materials; others allow a sell-off period to sell existing stock, or let existing customers keep using products they have already bought. The agreement should say which, and for how long.
Can the licensor raise royalty rates during the term of the licence?+
Not unless the agreement allows it. A licensor can’t change the rate on its own during the term, but many licences include indexation (for example, annual increases linked to inflation) or allow rates to be reset on renewal. Check whether the rate is fixed for the whole term, what any escalation clause is linked to, and what the renewal terms say.