Licensing Agreement Definition & Meaning

When we refer to the term ‘Licensing Agreement’ we mean that two or more parties enter into an agreement between them, where the owner contracts with the other party to accord some form of rights of usage or some other form to the other. The licensor (the party who owns the commodity) agrees that that Licensee (the other party) would have certain rights exclusively or in consonance with the owner, accorded to him with respect to the commodity in exchange for a licensing fee.

Just like any other contract, a licensing agreement is a detailed document that sets down the particular type of agreement that is being entered into, what are the terms of usage that would govern the said agreement, the rights and obligations that arise from the same. The most essential part of the agreement being the assignment of rights to the licensee.

This is where the rights of usage are conferred upon the licensee which would validate his usage of the commodity or other associated with it. What needs to be understood with respect to a licensing agreement is the fact that more often than not, one would be used for commercialization purposes of any new discoveries or technologies. This, however, does not mean they can be exclusively used only for the mentioned items. Licensing agreements are also popular in real estate holdings, intellectual property rights including trademarks, patents, and copyrights.

One special feature of a licensing agreement is the fact that it would end up delineating a geographical area within which the contract would be applicable and a limited time period for the applicability of the same. A prominent real-life application that we can observe in licensing agreements has to do with the Covid19 pandemic.

A handful of entities spent money in the research and development of vaccines against the same, the method was later licensed to manufacturers such as Serum Institute of India, Pune where they pay a royalty to the licensor which can be Astra-Zeneca or Moderna or Pfizer, depending upon what they are manufacturing and for whom.

Advantages

A licensing agreement generates revenue for the licensor by earning what is called a royalty, which is the amount of money they are paid for using any protected property, it can be a usage of a copyright or patent or any other such thing. A licensing agreement is most helpful for parties when they wish to expand the market presence by entering new territories and not needing to make a considerable investment in building the infrastructure needed for the product.

A licensing agreement ends up reducing risks for both the parties involved and reduces the initial expenditure that they would otherwise need to make to do the same thing. The biggest factor can be said to be the fact that licensing provides an easy gateway for products and companies to enter foreign markets and build a name for themselves.