License Agreements: An Explanation of the Provisions

A license – regardless of what it is for – grants a person or persons the right to a specific product, place or circumstance. For example, fishing licenses in the state of Texas allow the licensee to fish in any public freshwater pond where it is not prohibited by law. There are limits to how many fish a person can keep, but it grants the right to fish lakes and ponds. A software license, on the other hand, grants the licensee rights to use the product for either private or public purposes, as stated in the agreement.

There are usually provisions to a license agreement that explain in no uncertain terms how the license should be used, and when it is not applicable. If you are attempting to obtain a license, or if you have the authority to issue licenses, you should be aware of the provisions of license agreements and what they mean. I will use the fishing license example to explain each segment.

License Agreement Provision #1: Exclusivity/Nonexclusivity

This is the section of the license agreement that discusses where and when the license is viable. The license can be exclusive over some areas, but nonexclusive over others. For example, a fishing license in the state of Texas is nonexclusive because the licensee doesn’t have the right to ‘sublicense’ others.

License Agreement Provision #2: Terms

In the next section of the license agreement, the licensee will be informed as to how long the license will last, and how he or she should (or can) go about a renewal for the license. For instance, a Texas fishing license is good for a period of five years.

License Agreement Provision #3: Payment

The payment provision of your license agreement should not only state the up-front fee for the license, but also any fees associated with changes over time, shipping, taxes, renewal rates, etc. A fishing license, for example, includes a $5.00 shipping and handling fee if purchased online, which is included in the license agreement.

License Agreement Provision #4: Restrictions of Use

Next, the license agreement will give details for any restrictions on the use of that license. Where and when is the license not viable, and how will the licensee know? For example, a Texas fishing license does not grant you the right to fish on private property, or in community lakes and ponds where you don’t reside or have a membership.

License Agreement Provision #5: Infringement

This is the section in which the licensor gives testimony that he, she or the entity has the right to issue the license, and that the issued license does not infringe on the rights of any third party.

License Agreement Provision #6: Termination

Next, the license agreement should state when and how the license can be terminated, specifically stating certain circumstances in which the licensee breaches the agreement. For example, if a Texas fisherman is caught keeping too many catfish out of a lake, he or she stands to lose the license.

License Agreement Provision #7: Assignment

If the license agreement gives the licensee the right to ‘sublicense’ other people, then this right is given at the end of the agreement. For example, a Texas fishing license does not give the licensee the right to sell fishing licenses to other Texans.