License term: Overview, definition, and example
What is a license term?
A license term refers to the duration of time that a licensee is permitted to use a licensed asset, such as intellectual property, software, trademarks, or patented technology, under the terms of a licensing agreement. The license term may be fixed (e.g., 5 years), perpetual, or renewable based on the agreement's conditions.
For example, a software company may grant a business a three-year license to use its software, with an option to renew upon expiration.
Why is a license term important?
A clearly defined license term is crucial because it establishes the period during which the licensee has legal rights to use the licensed asset. This helps prevent disputes over expiration dates, renewal terms, and termination conditions.
For businesses, a well-structured license term ensures predictability, prevents unauthorized use after expiration, and aligns licensing agreements with business objectives.
Understanding license term through an example
Imagine a graphic design firm licenses stock images from a provider. The agreement states that the license term is one year, meaning the firm can use the images for commercial projects during that time. After a year, the license expires unless renewed, and continued use beyond the term may result in legal penalties.
In another scenario, a biotech company licenses a patented drug formula from a research institution for 10 years. The agreement includes a renewal clause, allowing the company to extend the license for an additional term if both parties agree.
An example of a license term clause
Here’s how a license term clause might appear in a licensing agreement:
“This License shall commence on [Start Date] and shall remain in effect for a period of [X] years unless earlier terminated in accordance with this Agreement. The Licensee may request renewal upon expiration, subject to the Licensor’s approval and renegotiation of terms.”
Conclusion
A license term defines how long a licensee can legally use a licensed asset, ensuring clarity in business agreements. Whether fixed, perpetual, or renewable, it helps protect intellectual property, set expectations, and prevent unauthorized use after expiration.
By including a license term clause in agreements, businesses can avoid disputes, ensure compliance, and manage licensing relationships effectively.
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.