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Licensing Contracts: Overview for Small Business

By Christopher Coble, Esq. | Last updated on

Sometimes you come up with a great idea for yourself, sometimes you come up with one for someone else. Or maybe you don't have the resources right now to take advantage of your good idea, but someone else does. So how do you make sure you're taken care of while someone else takes care of your big idea?

A licensing contract or agreement can allow you to share your intellectual property and get compensated if someone else is making money off your ideas. Licensing contracts may also allow your small business to use someone else's ideas or content without getting sued, and may be a good idea when using independent contractors. Here's a quick overview on licensing contracts and how they can help your small business.

Kinds of Contracts

There's no one-size-fits-all licensing agreement, and the one that's right for you will depend on the intellectual property involved and how it is being licensed. For instance, you could have a manufacturing license for an invention if you patented but don't have the resources to create. And if you or your firm developed a new app, user interface, or even a few lines of code, a software license agreement can protect software packages. And an art license can grant another party the rights to use your art for a limited time and for limited purposes while you, the artist, retain ultimate ownership of your art.

Whatever the kind of intellectual property you're trying to protect or use, the license contract is likely to be unique. So be wary of boilerplate agreements or handshake deals.

Limits of Licensing

The exact terms of the license can also vary, depending on what you or another party wants to do with the ideas in play:

  • Time Limits: License contracts can grant use for a specific amount of time, after which the license expires;
  • Use Limits: You can also determine the ways in which another party is permitted to use your IP, and prohibit uses outside the license;
  • Confidentiality: A licensing agreement can also prohibit parties to the contract from sharing or disclosing the work or technology with others;
  • Dispute Resolution: If there are disagreements about the licensing agreement, does that mean you're going to court? Not necessarily, you could require parties to choose mediation or arbitration to resolve contract disputes;
  • Compensation: Obviously this is the big one -- how does the party licensing the IP pay the owner? You could set a flat fee, annual or monthly rates, or even create a pay per use arrangement.

Before you agree to share your intellectual property, or borrow someone else's, contact an experienced IP attorney to make sure you have the right licensing contracts in place.

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