Licence agreements

Types of licence agreements

Licence agreements fall partly under IP agreements and partly under ICT agreements (e.g. licence for your customised software such as an “app”). Licence agreements come in all shapes and sizes. Think of production licences or sales licences, as well as distribution and agency agreements. Franchise agreements are also partly licence agreements on the brand, trade and domain name (think of chains such as Etos, Blokker, McDonalds). Franchise contracts often also contain agreements on other business aspects such as the purchase of goods, the appearance of the points of sale, collective ICT purchases, training, marketing, etc.

Types of royalties

The form of royalty agreements varies. These include ascending or descending royalties derived from a fixed amount (fixed fee) or the realised price, a fixed percentage of a product or net profit (if properly defined), but also a fixed lump sum (lump sum payment).

What is meant by royalties?

A “royalty” means “unearned income”, because kings – royalty – did not work (in the past). In the business context of a licence agreement, this usually means that the licensor, for example the developer of a product or owner of a brand, receives a fee from the licensee who commercially exploits that product or brand. This fee can be structured in various ways: a fixed amount per product sold, a percentage of turnover, an annual minimum fee or even a one-off lump sum payment. Please note: royalty agreements may seem simple, but they can lead to considerable discussions in practice, also due to international law and tax law. It is therefore crucial to lay this down clearly and specifically in the licence agreement.

What is the difference between a licence and a user agreement?

Although the terms “licence” and “user agreement” are often used interchangeably, there is a legal difference between them. A licence is essentially permission granted by the rights holder to another party to use an intellectual property right. Examples include the right to install software, use a trademark or apply a technology. The licence regulates exactly what is permitted, under what conditions, and often also where, for how long and whether that right is exclusive.

A user agreement is often “broader”: it specifies how a product or service may be used – not necessarily on the basis of an IP right. Examples include agreements on the creation of accounts, rules of use, liability, data use or termination of access. Many SaaS (software as a service) services combine these two aspects: the user is granted access to the software via a licence, but the terms and conditions of use are set out in a user agreement. In the case of SaaS – software as a service – a user agreement may mean that “access” to an online application is only available as long as payment is made, whereas if payment stops, there is no entitlement to the software as an application for, for example, creating a backup or API (application interface).

In practice, the two often overlap, but the difference is important in the event of disputes. Our advice: ensure that both documents are consistent with each other – preferably tailor-made – to avoid legal loopholes and interpretation problems. Would you like to know whether your current agreements are legally sound? We are happy to help.

Important to properly record agreements in licence contracts

You also receive licences if, for example, you have software or updates installed or “downloaded” for business purposes. When negotiating licences, we first need to explore the phase you are in. Has the financial section already been finalised and “all that remains” is a contract? Then it is still important to remain critical.

Because you can lose money by contracting poorly. This can cover anything: exclusivity, registration of licences, transfer to another company, method of payment, territories, marketing costs, liability, guarantees, duration, terminability, pledging of stocks of licensed goods, etc.

The presentation is often simple: “it’s the standard licence”, people say. Using a specialist solicitor with litigation experience is an asset in negotiations. This can take the form of advice in the background or at the table with the other party. This does cost money, but you will see that the risks are then “on the table” and pay for themselves. Clarity is what matters in practice. Short and simple contracts seem attractive. But make sure you identify the gaps and loose ends. Freedom of contract is a great asset, but that freedom is not unlimited, of course. Numerous laws and EU regulations (competition law) restrict that freedom in commercial contracts such as licences.

What risks can arise when using standard licence agreements?

Standard licence agreements seem attractive at first glance: they are readily available, accessible and often inexpensive or even free. But it is precisely this simplicity that can be treacherous. The biggest risk is that such an agreement does not match your specific situation, industry or agreements. There is also often a lack of clear rules about who has to prove what in the event of a dispute. Furthermore, certain sectors are often subject to mandatory rules and competition law restrictions that a standard contract simply does not cover. The result: legal vulnerability, uncertainty in the event of conflicts, and financial risks. Do you want to be sure that your licence really protects your interests? Feel free to contact us.

Specialised in IP, IT and ICT

The specialists at Fruytier Lawyers in Business have extensive experience with licences and draw up all kinds of agreements in the field of IP and IT and ICT-related European tenders. Contracting is doing business: understanding the goals and requirements, identifying risks and preconditions. It also means navigating within “business models”. Contracting is also negotiating.

Drawing up licences is one thing, but thoroughly analysing in advance what is actually allowed or required is quite another. Contracting is “modelling” and not retrieving a “standard” from the server. Where is the potential for conflict in the licence? This can vary depending on the party or type of product. Making agreements about evidence – who proves which item – can sometimes make a big difference.

Insight, overview and experience can help you; email [email protected] or call +31(0)20 52 101 30 for more information or a quick scan of your (draft) licence.