91��ܽ

An intellectual property (“IP”) licensing agreement is a contract in which the owner of IP (the licensor) grants another party (the licensee) permission to use the technology under defined terms and conditions.

This article is the first in a two-part series on the basics of IP licensing. Part one introduces the foundation of licensing agreements by focusing on the grant of rights clause. Part Two will build on this foundation by examining the key payment structures that are commonly found in IP licensing agreements.

Licensing IP: Grant of Rights

At the heart of any licensing agreement lies the grant of rights clause. This provision defines the scope of the license and establishes what the licensee can and cannot do with the technology. It identifies the type of IP being licensed, the rights being transferred, and the conditions or limitations attached to those rights.

I. Defining the Rights

The rights granted to a licensee vary depending on the form of IP. Copyright, for example, protects original works of literary, dramatic, musical or artistic nature that are in a fixed material form (i.e., written, recorded). A copyright license may allow the licensee to copy, reproduce, adapt, commercialize, or publicly display the work. Patents, by contrast, protect inventions. A patent licensee may be granted the right to make, use, or sell the patented invention. Trademarks protect brands, and a trademark licensee may be given the right to use the mark in association with its product or service.

There are also valuable forms of IP that are not governed by a registration system but can still be licensed. Trade secrets and know-how are examples of intangibles that may be shared and controlled through licensing agreements.

II. Restricting the Rights.

The rights granted under a license are not unlimited and may be narrowed through specific terms. A helpful way to understand this is to compare IP rights to land ownership. If you own 20 acres of land, you may allow a neighbour to use only 5 acres, limit that use to building a temporary pathway, and restrict it to a five-year period. Licensing works in much the same way: the licensor decides how much of their IP can be used, for what purpose, in which location, and for how long. These restrictions are established through the terms of the licensing agreement, some of which are explained below.

(a) Scope

The scope of a license refers to the boundaries within which the licensee may use the IP. It can be shaped by several factors, including territory, field of use, and exclusivity. For example, a company might receive a license to use the technology only within Canada (territorial limitation) and solely for medical applications (field of use limitation).

Territory. Territory sets the geographic area in which the licensee may use the licensed IP. This may range from a worldwide license to one restricted to a specific country, region, or even a single province or municipality.

Field of Use. Field of use limits the licensee’s rights to a specific industry, market, or application. For example, a drug formulation might be licensed for veterinary use only, while the licensor retains rights for human medical use. This helps licensors segment markets and maximize opportunities.

Exclusivity. Exclusivity determines whether the licensee is the only party entitled to use the IP within the agreed scope or whether the licensor can also grant similar rights to others. The license may be exclusive, non-exclusive, or sole.

Exclusive License. Under an exclusive license the licensee has the sole right to use the IP within the defined scope. It is the most restrictive arrangement from the licensor’s perspective because it prevents them from granting the same rights to anyone else, and unless the agreement specifically provides otherwise, from using the IP themselves.

Non-Exclusive License. A non-exclusive license allows the licensee to use the IP, but the licensor remains free to grant the same rights to other parties and to continue using the IP themselves. This is the least restrictive option for the licensor.

Sole License. A sole license sits between an exclusive and a non-exclusive license in terms of how restrictive it is for the licensor. In this arrangement, the licensee is the only external party allowed to use the IP within the defined scope, but the licensor keeps the right to use the IP for their own activities.

(b) Transferrable & Sub-Licensable License

While exclusivity defines the licensor’s ability to license the IP to others or use it themselves, transferability and sublicensing define the licensee’s ability to sell or sub-license their rights to third parties.

A transferable license allows the licensee to assign (i.e., sell or transfer) their licensed rights to another party. This can happen, for example, when a company that holds a license is acquired by another business. If the license is transferable, the new owner can continue using the licensed technology under the same terms as the original company.

A sublicensable license gives the licensee the right to further license out (i.e., sub-license) their rights to a third party. For example, a company might sublicense the rights to a manufacturer to produce the technology at scale, or to a research partner to support further development.

(c) Duration: Perpetual vs Time-Limited

The duration of a license refers to how long the licensee is permitted to exercise the licensed rights. Some licenses are perpetual, meaning they last indefinitely or for as long as the underlying IP right remains valid. For instance, a perpetual copyright license would continue until the copyright itself expires, which in Canada is generally 70 years after the end of the calendar year in which the author dies. Other licenses are time-limited whereby the rights are only granted for a fixed period of time, after which the rights revert to the licensor unless renewed.

(d) Revokable vs Irrevocable License

Revocability refers to whether the licensor has the power to take back the license once it has been granted. A revocable license allows the licensor to end the agreement if certain agreed upon conditions are breached, such as when the licensee fails to pay fees, misuses the IP, or otherwise violates the terms of the contract. You can think of it like renting an apartment: if the tenant stops paying rent or breaks the rules, the landlord can terminate the lease and reclaim the property. An irrevocable license, on the other hand, is much harder to take back. Once granted, it generally stays in place for its full duration and can only be ended in rare cases, such as when both parties agree to terminate it or when the underlying IP right itself expires.