License Agreement for a Trademark, Software or Patent: How to Grant Usage Rights

You have allowed a partner to use your brand, software, or technology and now expect everything to go according to plan. But what if it does not?

What if the partner starts granting sublicenses to third parties you have never even dealt with? What if the quality of goods sold under your trademark drops so much that it damages your reputation, not just the partner’s sales? What if royalty payments suddenly stop, but you cannot prove the exact amount owed because the agreement does not contain a clear calculation mechanism?

Or suppose you are on the other side and plan to use someone else’s brand, software, or patented technology. Are you sure the person signing the agreement with you actually has the right to authorize that use? For startups with several co-founders and contractors, this issue arises far more often than it may seem.

A template agreement downloaded from the internet will not resolve these issues. A trademark license, a software license, and a license for a patented invention are fundamentally different arrangements, each with its own risk profile. The most expensive gaps are often hidden precisely where a template tries to “simplify” matters.

Intellectual property can be one of a business’s most valuable assets. A trademark builds product recognition, software creates competitive advantages, and a patented invention may become the foundation of an entirely separate business line.

To generate revenue from such assets, the rights holder may allow other persons to use a brand, software, technology, or another intellectual property asset. This is done through a license agreement.

This article explains the types of licenses available, the terms that must be included in the agreement, and the issues that require particular attention depending on the type of intellectual property involved.

What Is a License Agreement and Why Is It Needed?

Under a license agreement, the rights holder, or licensor, authorizes another person, the licensee, to use a specified intellectual property asset on agreed terms.

The economic intellectual property rights are not transferred to the licensee: the licensee only receives the right to use the asset within the limits established by the agreement. In other words, the licensee may use the brand, software, or technology only in the specified ways, within the agreed territory, and for the agreed term.

A license agreement may cover:

• trademarks;
• computer software and mobile applications;
• online platforms and databases;
• photographs, texts, videos, designs, and other works;
• inventions and utility models;
• industrial designs;
• technological solutions.

Such an agreement is not only a tool for receiving compensation. It also allows the rights holder to control who uses the intellectual property, where it is used, and how.

The permitted methods of use must be specified precisely. General wording such as “the software may be used” or “the right to use the trademark is granted” is insufficient. The agreement should state exactly what actions the licensee is authorized to take.

Exclusive, Sole, and Non-Exclusive Licenses

When entering into the agreement, the parties must select the type of license.

Exclusive License

An exclusive license is granted to one licensee. Within the agreed territory, term, and permitted methods of use, the rights holder may not grant equivalent licenses to other persons and, as a rule, may not use the intellectual property itself within that scope.

This option may be appropriate when the partner invests substantial funds in production, advertising, software localization, or developing the brand in a new market.

However, an exclusive license imposes significant restrictions on the rights holder. For example, the rights holder will not be able to engage another partner even if the current licensee generates low sales or does not actively develop the product in that market. The agreement should therefore establish minimum sales volumes, compensation, territory, term, and grounds for early termination.

Sole License

A sole license is also granted to one licensee. The rights holder may not grant the same authorization to other persons but retains the right to use the intellectual property itself.

This model is suitable for cooperation with one strategic partner without requiring the rights holder to stop its own activities entirely.

To illustrate the difference between a sole license and an exclusive license, consider this example: a software rights holder grants a partner the right to commercially distribute the software in Poland.

Under an exclusive license, the rights holder may neither appoint another partner for that distribution nor carry out the distribution itself within the scope of the license.

Under a sole license, the rights holder likewise cannot appoint another licensee but retains the right to distribute the software independently in that market.

Non-Exclusive License

A non-exclusive license allows the rights holder to use the intellectual property itself and to grant licenses to other persons.

This model is most commonly used for software, mobile applications, digital services, photographs, and educational materials.

The appropriate license depends on the business model, the need for exclusivity, the size of the licensee’s investment, and the rights holder’s plans for working with other partners. Here are a few simple examples:

• If a company has developed software and plans to provide access to many customers, a non-exclusive license is generally appropriate. It does not restrict the company from continuing to work with other users.
• If one partner is brought in to enter a new market and takes responsibility for promoting and developing the product, the parties may choose an exclusive license.
• If the rights holder wants to work only with that partner while continuing its own activities in the same market, a sole license may be more appropriate.

Key Terms of a License Agreement

A properly drafted agreement should regulate in detail how the intellectual property may be used.

Licensed Intellectual Property

The agreement must identify precisely which intellectual property asset is being licensed.

• For a trademark, specify the certificate number, the mark itself, and the list of goods or services.
• For an invention, specify the patent number and the name of the invention.
• For software, specify the name, version, modules, documentation, or other identifying information.

Before signing the agreement, it is important to verify that the licensor actually owns the relevant rights. This is particularly important for software created by employees, contractors, or several startup founders.

For example, if software was created by an employee or an outside contractor, we always recommend checking how the employee’s employment agreement or the contractor’s civil-law agreement addresses ownership of the economic rights to the work product. If these provisions are missing, a dispute may arise over who owns the rights to the software and whether the company is entitled to license its use.

Permitted Methods of Use

The agreement should specify exactly what actions the licensee is permitted to take.

For a trademark, this may include placing the mark on goods, packaging, websites, advertising, and signage.

For software, this may include installation, operation, copying, integration, modification, use on a specified number of devices, or granting user access.

For an invention, this may include manufacturing products, using the technology, selling products, or importing them.

Territory and Term

The parties may limit use of the intellectual property to Ukraine, particular regions, or other countries.

For digital products, territorial restrictions should correspond to the way the software or online service is distributed.

The agreement should also specify the license term, the procedure for renewal, and the consequences of expiry or termination. For example, must the licensee delete the software, stop advertising, or destroy remaining packaging bearing the trademark?

License Fees and Royalties

Compensation may be paid in the form of:

• a one-time payment;
• regular fixed payments;
• royalties calculated as a percentage of revenue or sales;
• a fee per user, device, or unit of product;
• a combination of several payment methods.

The appropriate model should be selected individually for each agreement. For example, if you plan to grant a partner the right to use a trademark for manufacturing and selling products, expected sales volumes should be taken into account.

In our experience, if sales may increase substantially during the agreement term, it is often more beneficial for the rights holder to use royalties calculated as a percentage of sales rather than a fixed fee. In that case, license income grows together with the licensee’s sales. If use of the trademark is limited and predictable, however, a fixed payment may be simpler and more predictable.

The agreement should clearly define how compensation is calculated, payment deadlines, the licensee’s reporting obligations, and the rights holder’s right to verify the relevant data.

Sublicenses and Liability

A sublicense allows the licensee to grant another person the right to use the intellectual property. This possibility must be expressly permitted by the agreement.

The agreement should specify whether the rights holder’s prior written consent is required, to whom sublicenses may be granted, and who is liable for a sublicensee’s violations.

The agreement should also provide for liability for:

• using the intellectual property beyond the rights granted;
• providing access to unauthorized third parties;
• late payment;
• disclosure of confidential information;
• unauthorized modification of software;
• failure to comply with quality standards;
• continued use after the agreement has ended.

For example, when reviewing a license agreement for one of our clients, we found that the draft did not specify the consequences of continuing to use the intellectual property after the license term ended. This created a risk that the counterparty would continue using the asset without proper authorization and that the client would then have to prove the infringement separately and demand that the use stop.

We recommended expressly requiring the licensee, once the license ends, to stop using the intellectual property and return related materials and copies, as well as including contractual penalties for failure to comply. This allows the parties to define their post-termination obligations in advance and reduces the risk of continued unauthorized use.

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Licensing Requirements for Different Types of Intellectual Property

Trademarks

Trademark licensing directly affects brand reputation. If the licensee produces poor-quality goods, the negative consequences may also affect the rights holder.

The agreement should therefore establish quality standards, rules for using the logo, and requirements for packaging, advertising, and product presentation.

A brand book, technical standards, and a procedure for approving advertising materials may be attached to the agreement. The rights holder should also consider reserving the right to inspect the quality of goods and services.

You can read more about granting the right to use a trademark in our previous article.

Software

When licensing software, the agreement should specify:

• the number of users and devices;
• whether remote access is permitted;
• the right to create backup copies;
• access to source code;
• whether modification and integration are permitted;
• how updates are provided;
• the terms of technical support;
• rules for using third-party components;
• the procedure for blocking access.

A software license should be distinguished from implementation, configuration, hosting, and technical support services. These services may be governed by separate provisions or separate agreements.

If the software contains open-source components, the terms of the relevant licenses must be reviewed. Some of them may impose additional requirements on distribution or modification of the product.

A software license agreement is not the only document an IT company or startup may need. More information is available here.

Inventions and Utility Models

Before licensing an invention, verify that the patent is valid, determine the territory in which legal protection applies, and confirm that the required fees have been paid.

The agreement should state whether the licensee may manufacture products, use the patented process, sell or import products, or improve the technology.

The parties should also separately regulate rights to improvements and new technical solutions that the licensee may create while using the invention.

How Is a License Different From an Assignment of Economic IP Rights?

Under a license agreement, the rights holder retains ownership of the intellectual property and merely permits another person to use it within defined limits.

When economic IP rights are assigned, the acquirer receives the economic rights specified in the agreement to the extent established by that agreement. The author’s personal non-property rights are not transferred. The previous rights holder loses the rights that were assigned.

Licensing is appropriate where the owner wants to retain control over the asset, work with several partners, and receive recurring income.

A full assignment of rights is more commonly used when software, technology, a brand, or an entire business is sold.

Common Mistakes and Risks in License Agreements

One of the main mistakes is using a template agreement without accounting for the specific features of the intellectual property involved. A trademark license cannot contain exactly the same terms as an agreement for cloud software or a patented technology.

The main risks include:

• failure to confirm the licensor’s rights;
• an unclear description of the intellectual property;
• undefined permitted methods of use;
• uncontrolled sublicensing;
• errors in royalty calculations;
• lack of quality control;
• unregulated rights to updates and modifications;
• no rules governing use after the agreement ends.

Legal Support for Entering Into a License Agreement

A properly drafted license agreement allows the rights holder to retain control over the asset, generate income, and prevent unauthorized use. For the licensee, it confirms the lawful use of the brand, software, or technology and reduces the risk of future claims and financial losses.

The key point is that the agreement must actually be drafted properly, which is difficult without experience in license agreements. We have that experience, and as part of our legal support we:

• verify rights to the intellectual property;
• analyze the business model and purpose of the cooperation;
• help select the appropriate type of license;
• define the territory, term, and permitted methods of use;
• develop the royalty payment mechanism;
• regulate sublicensing;
• provide for quality control;
• establish liability for violations;
• assist with negotiations with the counterparty;
• review and revise the proposed agreement;
• prepare the license agreement and its annexes.

For software, we additionally define rules for access to source code, updates, modifications, and technical support.

For trademarks, we establish rules for compliance with the brand book and quality control.

For inventions, we regulate the terms of using the technology and rights to improvements.

If you want to enter into a license agreement safely and protect your interests before the cooperation even begins, contact us.

You will receive comprehensive support with the agreement—from negotiations with the counterparty and revisions through to signing. None of the agreements we have prepared has been successfully challenged in court.

Learn more about the terms of our service here.