A license agreement is one of the most common and straight forward types of contracts out there. It essentially gives license, or permission, for someone to use something created by another person. Examples of a license agreement would include a character from one television show showing up on another show or a product, such as Febreeze, being used and marketed as part of another product. License agreements tend to be simple at the onset but can become quite bogged down in legal mumbo jumbo if a company is concerned that the license agreement is going to be abused or misused in a way that could harm the original license holder.
One of the most popular uses of a license agreement is to protect intellectual property. The license agreement is necessary to prevent possible legal action by the inventors of the intellectual property that is being used. For example, say Microsoft invents a particular piece of computer software that is then included in a larger suite of software released by another company. That company would need a license agreement to release and make money off of the original software developed by Microsoft. Not only would the license agreement give permission to that company to release and profit off of Microsoft’s invention, but it would also outline how Microsoft would get paid, for how long and for how much.
Another example in which a license agreement is often used is with the sale of personal computers. When a personal computer is sold, it often contains dozens of software programs already installed on it, and not all of them are from the same manufacturer. That means that the company that is selling the computer needs a separate license agreement with every company who has software preinstalled on that particular computer. All of this is outlined in the end user agreement that comes with personal computers. Some companies don’t allow hard copies of their software to be included with the shipment of a new computer, instead, they only allow the one copy that is installed to exist and that’s it. This is mostly done because they fear that pirated copies will be made and they will lose revenue.
License agreements are also used if a company wants to use another company’s trademark. Sometimes companies will enter into advertising agreements, such as when McDonalds advertises the latest Hollywood hit film, they will use that film’s trademark in their own advertising. When this happens, you will need a license agreement that covers trademark use. The agreement would have to cover how long McDonalds would be able to use the trademark and for what type of advertising. Again, the basic agreement is actually quite short but when it is padded out with extensive rules and regulations, a license agreement can become quite lengthy.
As you can see, a license agreement is a vitally important form of contract that can help companies share everything from products to images to trademarks safely.