License restrictions: Overview, definition, and example
What are license restrictions?
License restrictions are limitations placed on the use, distribution, or modification of a product, software, or intellectual property under a licensing agreement. These restrictions define what the licensee can and cannot do with the licensed material, ensuring that the licensor retains control over its use. Common restrictions include prohibitions on sublicensing, modification, resale, or use beyond a specific geographic area or industry.
For example, a company that licenses business management software may include a restriction that prevents users from copying or redistributing the software without permission.
Why are license restrictions important?
License restrictions protect the rights of the licensor and ensure the licensed product is used only as intended. Without these limitations, licensees might misuse, resell, or alter the product in ways that could harm the licensor’s business, legal standing, or intellectual property rights.
For businesses, clear license restrictions help prevent unauthorized use, maintain revenue streams, and avoid legal disputes. For licensees, understanding these restrictions ensures compliance with the terms of use and avoids potential liability.
Understanding license restrictions through an example
Imagine a graphic design firm licenses a font package for commercial use. The licensing agreement specifies that the firm can use the fonts for client projects but cannot resell or distribute them as standalone products. If the firm ignores this restriction and sells the fonts to others, it could face legal action for violating the license agreement.
In another scenario, a cloud-based software provider grants businesses a subscription license for internal use. The license restrictions explicitly prohibit reverse engineering the software or using it for competitive analysis. This prevents competitors from accessing and replicating proprietary technology.
An example of a license restrictions clause
Here’s how a license restrictions clause might appear in a software agreement:
“Licensee shall not copy, modify, distribute, sublicense, reverse engineer, or use the Licensed Software for any purpose other than as expressly authorized in this Agreement. Any unauthorized use shall be deemed a material breach of this Agreement.”
Conclusion
License restrictions define the limitations on how a licensed product or intellectual property can be used, protecting the rights of the licensor while ensuring compliance from the licensee. Businesses should clearly outline these restrictions in agreements to prevent misuse, while licensees must understand their obligations to avoid legal and financial penalties.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.