License agreement, what is it? Licensing an intellectual property right means allowing another party, e.g. a company or another organization, to use the protected work. With the help of this contract, a work can be commercially exploited in different ways and to different extents.

If one party (the so-called “licensor”) grants another party (the so-called “licensee”) permission to use its industrial property rights, this is referred to as a license agreement.

It is not possible to register a license in Germany in the same way as trademarks. As license agreements as a whole are not covered by the law, there are only a few specific provisions, such as the copyright license agreement (Sections 31 ff. UrhG).

Therefore, licenses are often governed by individual contracts that are subject to normal contract law. Under the license agreement, the licensee receives permission from the licensor to use the property right to a certain extent.

License agreement – what is it?

As with patents, the license agreement also has a special significance for trademarks, designs and utility models. A license agreement can be used for a variety of things, e.g. for licensing a film, a trademark or a graphic design.

License agreements are also widely used for the use of software and proprietary technology. All three business areas rely on a license agreement to protect their intellectual property rights.

To give you a quick overview, we have compiled the following list of possible uses of license agreements:

  • Trademark rights
  • Designs that are authorized for use
  • Models that can be used in everyday life
  • Copyright for software marks
  • Patents

The licensor retains the right to exploit the product and grant further simple license agreements, while the licensee obtains the right to use the product. It is common for exclusive license agreements to prevent the rights holder from exploiting his own rights and granting further licenses.

In the case of an exclusive license agreement, infringements can be pursued by legal action.

License agreement for software and other products

Examples of common license agreements

  • License agreements for copyright
  • License agreements for film and television
  • Agreements on the licensing of trademarks
  • License agreements for patents
  • License agreements for software

The scope of the license grant is one of the most important aspects of the license agreement. It specifies which rights of use, such as patent rights or copyrights, the rights holder wishes to transfer to the licensee.

Operating license agreement: An operating license agreement is closely linked to the operation of a company. This means that only employees of the company can use the license.

If one person is granted an exclusive right of use, this means that no one else has access to the right or type of use granted to the licensee.

In a simple license agreement, the licensee is granted permission to use a copyrighted work. The license agreement contains a detailed description of the license conditions. The license rights can be used by the licensor, including the conclusion of further license agreements with third parties, insofar as this is permitted by the license agreement.

Payments and license fees

In terms of the agreement, a license is a type of transfer of rights. A fee is often paid to the owner of the intellectual property rights for the transfer.

The type of license you acquire has a significant impact on the amount of remuneration you receive: The cost of a simple license is usually low, but the rights of use can subsequently be acquired by competitors. With an exclusive license, the costs are higher, but the licensee is the only one to benefit from this knowledge.

The license costs can be freely agreed by the contracting parties. In practice, flat-rate licenses, where a predetermined price is regularly agreed, and revenue licenses, where a share of the revenue generated by the license is payable, are common. Depending on the chosen pricing model, the license agreement may include billing and payment terms.

The payment modalities for license fees can be agreed in different ways. These types of models are frequently used:

  1. With a per-unit license, the license fee is paid for each unit of use or production generated.
  2. Payment is made in a single sum at the beginning of the license period.
  3. In the case of a profit license, the fee is based on the profit per unit.
  4. In the case of a revenue license, the licensor receives a share of the money that the licensee earns from the licensed item.

Violations of license agreements and their consequences

If a licensee violates the terms of a license agreement, this can have far-reaching legal consequences. Here are some possible scenarios and their legal implications:

  • In the event of a breach of the license agreement, the licensor may claim damages from the licensee. This can be particularly relevant if, for example, software is used without a license or in excess of the licensed number of users.
  • A licensee who breaches a contractual obligation also runs the risk of the license agreement being terminated. In such a case, the right of use would expire and the licensee would have to delete or destroy all remaining copies of the software.
  • In serious cases, a license violation could even result in criminal prosecution, for example if the licensee resells the software or uses it in a way that is not covered by the license agreement.

How can license violations be detected and prosecuted?

Detecting license violations is often a challenge as they are often not obvious. However, there are various methods and tools that can help to detect and prevent license violations. For example, licensors can conduct audits to verify compliance with license terms.

License agreement – structure, content and the most important terms

Each agreement has its own set of contractual obligations that must be fulfilled by the parties involved.

In most cases, the licensor is responsible for the maintenance of the IP right, which includes the payment of annual fees, the defense against challenges to the right and the prosecution of infringements by normal licensees.The licensee is responsible for paying the agreed license fees, regularly exercising the license and keeping separate books and accounts if it is an exclusive license.

The structure of the license agreement

The terms of a license specify how and to what extent a particular intellectual property right can be used by the licensee.

Theoretically, it is not necessary to sign a written license agreement. However, a written agreement is recommended for documentation purposes. The agreements generally contain the following elements:

  • Description of the scope of the license
  • Warranties and liability
  • Rights of use granted – definition, scope and extent in the event of non-compliance with the terms of the agreement
  • The price structure of the licensing model
  • Signatures of both parties

There should be no agreements between the parties other than those contained in a license agreement. The primary objective is to ensure that the property right can be used. For this reason, license agreements often contain provisions on the payment of fees to maintain the property right.

Further transfer of the license right through a sublicense

With a sublicense, an exclusive licensee can grant a third party access to the rights to a protected work. As with a full license transfer, the “master right” remains with the licensee.

The granting of sublicenses should only be permitted with the consent of the licensor and should be documented when the license agreement is drawn up.

Sublicenses may be granted if the licensee is entitled to do so. The granting of sublicenses is only possible if the licensor’s consent or subsequent approval has been granted as part of a basic license agreement. When drafting the contract, it is advisable to include a provision on sublicensing at an early stage.

Performance disruption and warranty protection

The contractual agreements and general civil contract law as well as the provisions on the statutory rental agreement (581, 535 ff. BGB) apply.

The licensor is only liable for the technical feasibility and usability, but not for the commercial usability.

The licensee is largely responsible for ensuring that the product is marketable and has the potential for acceptable commercial exploitation. It is still the licensor’s responsibility to ensure that the property right exists at the time the agreement is signed.

If the property right does not yet exist, the licensor is liable to the licensee if it is not granted. The licensee may refuse to pay the fees until the licensee has remedied any significant defects in title.

Terminating a license agreement

When a license agreement expires, the right of use granted to the licensee reverts to the original owner of the property right.

The license purchase is usually completely fulfilled by both parties when the mutual main services have been rendered, i.e. the licensor has granted the license and the licensee has paid the purchase price.

The licensee can no longer use the license once the agreement has been terminated.

In order to avoid legal infringements after the expiry of a license agreement, the licensor can include transitional provisions in the license agreement.

EULA: Understanding and legal significance of end user license agreements

EULA – A term we all too often overlook when we install our latest apps or click to agree when updating our software. What exactly is this End User License Agreement, often abbreviated as EULA? Why is it important to understand it? What does it mean for us as end users and for companies?

What is an EULA?

Let’s start with the basics. EULA stands for “End User License Agreement”. This is a legally binding contract between the provider of software and the user of that software. The EULA not only sets out the rules for the use of the software, but also protects the rights of the developer and defines the limits and responsibilities of the user.

Why is EULA important?

In the digital era we live in today, the end user license agreement is crucial. It regulates the relationship between the software manufacturer and the end user and ensures that the rights and obligations of both parties are clearly defined. It specifies how and for what purpose the software may be used, which helps to prevent misuse and copyright infringements. In addition, the EULA also ensures that responsibilities are clearly allocated in the event of a given problem or improper use of the software.

The details of an end user license agreement

An EULA is usually divided into different sections, but these can vary depending on the product and company. Here are some of the general sections you might find in a typical end user license agreement.

  • License Grant: This section describes the type of license granted to the user, including the entitlement of use and whether it is an exclusive or non-exclusive license.
  • Usage Restrictions: This defines the limits and restrictions on the use of the software, including whether the software can be copied, modified or resold.
  • Intellectual property rights: This section describes the ownership structure of intellectual property and copyrights.
  • Limitations of liability: This is where the software provider specifies the amount and terms of liability for damages resulting from use of the software.

Understanding the EULA: Two examples

Let’s assume you have purchased software to edit your photos. Vendor A’s EULA might state that you may only install the software on a single device and that you may not share it with third parties. Vendor B’s end user license agreement, on the other hand, might allow you to install the software on multiple devices and even share it with friends and family. Understanding the specific terms of the EULA can help you choose the software that’s best for you.

Or imagine you run your own small business and use accounting software. Vendor X’s EULA might state that any data you enter through the software may be retained and analyzed by the vendor. Vendor Y’s end user license agreement, on the other hand, might guarantee that your data will be kept strictly confidential and not used for any other purpose. These differences could have a significant impact on your business and the protection of your business data.

How to read and understand EULAs

Now that we have an understanding of what an EULA is and why it’s important, let’s consider how to read and understand them. While it may be tempting to just click “I agree” and move on, it’s wise to take the time to read and understand the EULA before agreeing.

Read the entire EULA: It may be tedious, but it is important to read the entire EULA. You may come across important information that could influence your decision.
Look for exceptions and limitations: These sections of the EULA can be especially important to understand what rights you do and do not have as a user.
Consider the potential risks: Consider what risks might arise from agreeing to the EULA. Are there any clauses in the EULA that could jeopardize your privacy or unduly strengthen the rights of the software provider?
EULAs can be quite complex and it is always advisable to consult a lawyer, especially if you run a business and use the software for business purposes.

License agreement lawyer

You should seek legal advice as early as the contract drafting stage to avoid problems later on. You should also have the content of any license agreements submitted to you checked.

The lawyers at Herfurtner are available to you for this purpose as part of a free initial consultation.