Third party licenses: Overview, definition, and example
What are third party licenses?
Third party licenses refer to agreements that allow one party (the licensee) to use intellectual property (such as software, trademarks, patents, or copyrighted materials) owned by another party (the licensor). These licenses typically grant permission to use the intellectual property under specific conditions, such as limitations on how the property can be used, the duration of the use, or the geographical areas where the intellectual property can be utilized. A third party license involves two distinct entities—the original intellectual property owner (the first party), and the licensee (the second party), but also includes a third party entity that either provides or uses the licensed property under the agreement.
For example, a software company may obtain a third party license to integrate another company’s patented technology into its own software product.
Why are third party licenses important?
Third party licenses are important because they allow businesses and individuals to leverage existing intellectual property without the need to develop everything in-house. These licenses provide access to valuable assets such as technology, designs, or brand names, enabling businesses to enhance their offerings, save time, and avoid costly innovation efforts. By obtaining a third party license, companies can expand their product offerings, increase market reach, and avoid infringing on intellectual property rights.
For businesses, securing third party licenses can provide a competitive advantage, allow for product differentiation, and open up new revenue streams. For license holders (licensors), granting licenses can be a way to monetize their intellectual property without losing ownership, while ensuring their property is used according to their preferences.
Understanding third party licenses through an example
Imagine a smartphone manufacturer that wants to include a specific music streaming app in its new device. Instead of developing its own music app, the manufacturer enters into a third party license agreement with the streaming service provider to include their app pre-installed on the phone. The manufacturer obtains permission to distribute the app to consumers but must comply with the terms set by the music streaming provider, such as restrictions on distribution, marketing, and user data handling.
In another example, a video game developer licenses a well-known movie franchise to create a game based on the movie. The developer enters into a third party licensing agreement with the movie studio, granting them the right to use the characters, plot, and branding of the movie in the game, while the movie studio ensures the game meets the licensing conditions to protect its intellectual property.
An example of a third party license clause
Here’s how a third party license clause might appear in an agreement:
“The Licensor hereby grants the Licensee a non-exclusive, worldwide license to use the [Trademark/Patent/Software] in connection with the manufacture, sale, and distribution of [Product]. The Licensee agrees to pay the Licensor a royalty of [X]% of net sales for the use of the licensed property and to adhere to the specifications and conditions outlined in this Agreement.”
Conclusion
Third party licenses are essential tools for businesses looking to expand their product offerings, access valuable intellectual property, and avoid the time and expense of creating new technology or content from scratch. By securing third party licenses, businesses can increase their competitiveness, enter new markets, and offer enhanced products or services. For licensors, granting third party licenses is an effective way to monetize their intellectual property while retaining ownership and control over its use.
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.