License Agreement: Simple on the surface, risky underneath

SHORT ANSWER TO THE MAIN QUESTION

A licence agreement allows a person entitled to an intellectual property right to grant another person permission to exercise that right within an agreed scope.

It may concern, for example, copyright works, photographs, graphic designs, software, trade marks, or other intellectual property rights.

By granting a licence, you generally do not give up or transfer the underlying right itself. Instead, you allow another party to use it under specified conditions.

In practice, the most important question is therefore not only whether a licence exists, but what exactly the licence allows the licensee to do.

YOU MAY BE THINKING…

“If I paid for the graphic design, can I automatically use it however I want?”

“Is it enough to say that the other party may use the work?”

“What is the difference between an exclusive and a non-exclusive licence?”

“Can the licensee allow someone else to use the right?”

“What happens to the licence when our cooperation ends?”

THE REAL PROBLEM IN PRACTICE: THEORY VS REALITY

In theory, the arrangement seems simple.

One party owns or controls a particular right. Another party wants to use it. They agree on a licence.

But the word “use” can mean dozens of different things in practice.

For a photograph, it may mean use on a website, social media, printed advertising, or product packaging.

For software, the number of users, devices, companies, or the method of deployment may be crucial.

For a trade mark, it may matter which products or services it can be used for and in which territories.

The agreement may therefore need to address:

• exactly what is being licensed,
• how the right may be used,
• in which territory,
• for how long,
• whether the licence is exclusive or non-exclusive,
• whether sublicensing is permitted,
• whether the work may be modified,
• how the licence fee is structured,
• what happens when the licence ends.

In practice, the scope of the licence is often more important than the name of the agreement itself.

BIGGEST RISKS AND COMMON MISTAKES

With licence agreements, I would pay particular attention to:

• vague identification of the licensed subject matter,
• overly broad wording allowing “unlimited use”,
• unclear permitted uses,
• poorly considered territorial or time limits,
• confusion between exclusive and non-exclusive licences,
• failure to address sublicensing,
• unclear rules regarding modifications to a work,
• poorly structured licence fees,
• missing rules for continued use after termination,
• assuming that payment for the creation of a work automatically gives the customer an unlimited right to use it.

A typical mistake?

The parties discuss how much will be paid for the work or licence in great detail, but spend far less time defining what the paying party is actually allowed to do in return.

HOW TO APPROACH IT: REALITY, NOT THEORY

Before drafting a licence agreement, I recommend starting with the intended use rather than with legal wording.

1. What exactly is being licensed?
   A photograph, text, graphic design, software, trade mark, or another right?
2. How does the other party intend to use it?
   General phrases such as “for marketing” or “for business purposes” may not be enough.
3. Where should use be permitted?
   The Czech Republic, Europe, worldwide, or online?
4. How long should the licence last?
5. Can the same rights be granted to someone else?
   In other words, should the licence be exclusive or non-exclusive?
6. Can the licensee grant the licence, or part of it, to someone else?
7. How will the licence fee be structured?
8. What should happen when the agreement ends?

Only after answering these questions can the licence agreement be structured properly.

PRACTICAL EXAMPLES

👉 Photographs for a website

A business commissions professional photographs and pays the photographer for creating them.

The business automatically assumes that the photographs can be used without restriction on its website, social media, in advertising, and in other materials.

The photographer has a different understanding of the permitted scope of use.

The problem did not arise because of the price of the photographs.

It arose because the parties had not clearly established how the photographs could be used.

👉 Software used within a corporate group

A company obtains a software licence.

Over time, other companies within the same corporate group begin using the software as well.

However, the agreement was drafted for one specific licensee.

Only then do the parties begin asking whether the licence actually covers the way the software has gradually come to be used in practice.

👉 A business partner using a trade mark

A manufacturer allows a distributor to use its trade mark when promoting particular products.

The distributor later begins using the trade mark in ways the manufacturer considers inappropriate for its brand.

Without clear rules, the dispute is no longer only about whether the distributor could use the trade mark, but also how it was permitted to use it.

WHY YOU SHOULD BE CAREFUL WITH “I’LL DO IT MYSELF”

Licence agreements have one inconvenient characteristic.

They can look very simple until you start defining the actual scope of the licence.

A template can easily state that the licensor “grants the licensee a licence.”

But that is where most of the practical questions begin rather than end.

A generic template does not know whether you need to publish a photograph once on a website, operate software on hundreds of devices, or use a trade mark across several markets for many years.

Nor does it know what the licensor needs to keep under their control.

The aim of a licence agreement is therefore not to obtain the broadest wording possible.

The aim is to establish a scope of rights that reflects the actual purpose of the relationship and the interests of both parties.

LAWYER’S RECOMMENDATION + CHECKLIST

With a licence agreement, I recommend asking one very practical question:

Could I read the agreement and clearly determine whether a particular use is permitted or already falls outside the licence?

If not, the scope of the licence probably needs to be defined more precisely.

Quick checklist

• The licensed subject matter is precisely identified.
• Permitted uses are clearly defined.
• The territory and duration are addressed.
• It is clear whether the licence is exclusive or non-exclusive.
• Sublicensing is addressed.
• Modifications or alterations to the work are addressed.
• The licence fee is clearly structured.
• The agreement explains what happens when the licence ends.

FAQ

What is a licence agreement?

A licence agreement allows a licensee to exercise a particular intellectual property right within the scope agreed with the licensor.

Does a licence transfer copyright?

No. A licence and a transfer of the underlying right are not the same thing. Copyright also has its own specific legal characteristics under Czech law. A licence typically gives the licensee permission to use the protected subject matter in particular ways.

What is the difference between an exclusive and a non-exclusive licence?

In simplified terms, with a non-exclusive licence, the licensor can generally grant corresponding rights to other persons as well. An exclusive licence gives the licensee a significantly stronger position and therefore requires particularly careful drafting.

If I pay someone to create a work, do I automatically receive an unlimited licence?

No, not automatically. Paying for the creation of a work and determining the scope of the right to use that work afterwards are separate issues that need to be distinguished.

Can a licensee allow someone else to use the licensed right?

The possibility of granting rights to another person depends on the particular agreement and the applicable legal rules. If third-party use is part of the business model, the agreement should address sublicensing expressly.

Does a licence agreement have to be in writing?

Formal requirements may differ depending on the type of licence and the particular arrangement. For commercially significant licences, a written agreement is in any event important for clearly defining the scope of the rights and for evidentiary purposes.