Licensing Agreement: Key Terms and Managing Signatures Electronically

A licence agreement is a legally binding contract in which the licensor, the owner of the IP, allows the licensee to use it for a specific purpose, period and territory. The price is usually a fee, a royalty or both. It is binding on both sides from the date it is signed.

Ownership does not change hands. That is the difference between a licence and an assignment, which transfers ownership of the IP permanently. A licence ends when the term expires or when it is terminated.

Licences are usually classified by how much exclusivity they give.

They can also be grouped by subject matter:

• Patent and technology licences. Permission to make, use or sell a patented product or process, often with a transfer of know-how.
• Trade mark licences. Permission to use a brand name or logo on specific products or services, subject to quality standards.
• Copyright licences. Permission to copy, publish or adapt books, music or images, including the right to create derivative works.
• Software licences. Arrangements for software and online services that grant access to a product without transferring the proprietary code.

A sound draft should include the following provisions.

• Parties. The full legal names of the licensor and licensee, including any affiliates of either company that may rely on the licence.
• Grant of rights. Exactly which products or services are covered, whether others may hold the same rights, and whether sub-licences are allowed, including to affiliates.
• Scope. The territory, the specific sector and the term, with the start date and any renewal.
• Payment. Upfront fees, royalties, minimum payments, the time allowed for payment and the right to audit sales records.
• Quality standards. The specific standards and brand policies the licensee must meet, and how the brand may be used.
• Ownership and improvements. Confirmation that the owner keeps all proprietary rights, and who owns later improvements and derivative works.
• Confidential information. How to treat confidential information, including know-how, proprietary materials and business information shared under the licence.
• Warranties and indemnities. Who bears the risk if someone else claims infringement.
• Breach and termination. What counts as a material breach, how long the party in breach has to remedy it and what happens to stock and materials after termination for breach.
• Binding effect and jurisdiction. Whether the licence is binding on successors and affiliates if a company is sold, and which country's law applies.

For the licensor, the deal brings income from existing assets and access to new markets with less capital at risk. The main risks are loss of control over quality standards and damage to the brand if the licensee falls short of those standards.

For the licensee, the benefits are speed and lower development cost. The risks are dependence on the owner, royalty obligations that continue when sales fall and restrictions on how the IP can be used over time.

Clear wording on scope, audit rights and exit clauses do more to protect intellectual property than any later claim for breach.

A licence is governed by general contract law, but several specific rules apply in the UK.

Some licences are only effective if they meet statutory formalities. Under section 28(2) of the Trade Marks Act 1994, a licence of a registered trade mark is not effective unless it is in writing and signed by or on behalf of the grantor. For copyright, a licence only qualifies as an exclusive licence under section 92(1) of the Copyright, Designs and Patents Act 1988 if it is in writing and signed by or on behalf of the copyright owner. Without those formalities the contract still binds the parties, but the licensee loses the rights an exclusive licensee would otherwise have.

Patents work differently. Registration is not a condition of validity, but an exclusive patent licence should be entered on the register under section 33 of the Patents Act 1977 within six months of its date. If that window is missed, section 68 means the court will not award the exclusive licensee its costs or expenses in later infringement proceedings.

Restrictions in a licence, such as territorial limits or pricing controls, can breach competition rules. Since 1 May 2026, technology licences in the UK have been covered by the Competition Act 1998 (Technology Transfer Agreements Block Exemption) Order 2026, which runs until the end of 2038. Competitors qualify automatically where their combined share is 20% or less of the market for the contract products, and either 20% or less of the technology rights market or there are at least three independent competing technologies. For parties that are not competitors, the threshold is 30% each.

The IPO guidance page mentioned above also publishes a free skeleton licence and two checklists. They can be used to check that a draft covers the standard headings. A company working with a university on research can turn to the Lambert Toolkit, a set of model contracts that include licence terms, although its content dates from 2018 and does not reflect post-Brexit changes or the rules described above.

Templates are a starting point, not a finished contract: a missing provision on improvements or exit can be expensive. For high-value licences, ask a solicitor to review the draft. The same principles apply as in SaaS contract negotiation.

Licensing deals often involve companies in different countries, several signatories on each side and repeated renewals. Printing and posting contracts takes time. Electronic signatures are legally valid in the UK for commercial contracts, even for licences that statute requires to be "in writing and signed": the Law Commission confirmed that an electronic signature can execute a document where the signatory intends to authenticate it. Each signatory receives an email link, checks the document on any device and signs in a couple of minutes, and nobody has to print, scan or post anything.

A good licence turns IP into a working business relationship. The grant, scope, payment and termination clauses decide whether that relationship is profitable, so draft them carefully.

Once the wording is agreed, signing should not hold things up. Youtrust lets licensors and licensees sign from anywhere, with a secure audit trail that proves who signed and when.