As a business lawyer who’s seen a lot of licensing deals go very well (and a few very badly), here’s a clear guide to help you understand how to license your product to others, what it really means, what to think about, and the classic mistakes to avoid.

This is general information, not tailored legal advice. Always get a lawyer to review your specific agreement before you sign anything important.

Introduction

Licensing your product to others can be one of the smartest ways to grow your business without growing your overhead. Instead of building new teams, channels, or markets yourself, you let partners do it—while you keep ownership of your IP and earn ongoing revenue. As a business lawyer, I’ve seen licensing deals create empires and I’ve seen them quietly kill great products. The difference is rarely the idea; it’s the structure of the deal.

In this article, we’ll walk through what licensing actually means, what you need to think about before you sign anything, and the classic mistakes that cost entrepreneurs control, money, and time.

What does it actually mean to license your product?

When you license your product, you are not selling your product or the foundation it stands on. You remain the owner. What you are doing is giving someone permission to use certain rights to your product, under agreed conditions – and against payment.

In most cases, what you’re licensing is some form of intellectual property (IP), for example:

• Software (for example: SaaS, installed software, APIs, algorithms)

• Brand (for example: trademarks, logos, product names)

• Content (for example: courses, training material, designs, photos, text, videos)

• Technology (for example: patents, technical know-how, manufacturing methods)

• Product design (for example: industrial design, packaging, etc.)

  
  

Think of it like renting out a house where you still own the house (the IP) while you let someone else use it for a while, under rules you negotiated (the licensing terms).

Why license instead of just selling or doing it yourself?

Licensing can be a very profitable business model. It often makes sense when you want to white label your product (that is you have a core product that others could use under their own brand) or you have a product that others could sell or leverage in other ways more efficiently than you due to their market position (this can include e.g. what market they operate under, what other products/businesses they operate, what offerings and partners they have). This can hence be a good model if you have strong IP but limited distribution or sales capacity and they can scale your product faster or in other segments and sectors than you can (e.g., big retailers, large platforms).

For some products licensing is the only way to monetize them, for example some software products (think Microsoft).

Licensing can also be attractive as it will most often give you recurring revenue (royalties) instead of a one-off sale and you can often bind the license taker for a substantial time period.

Licensing is especially common in:

• Software (for example: white-label and SaaS with enterprise agreements)

• Manufacturing (for example: letting someone produce using your design or patent)

• Content & training (for example: letting others use your materials under their brand or yours)

• Brand & franchising (for example: allowing others to operate under your name and systems)

  
  

The key building blocks of a license agreement

Given that you are “lending” and hence trusting key IP to the license taker, the terms and conditions under which you do so will be very important. When I draft or review a license agreement, I mentally walk through the following checklist:

Scope: Who can do what, where, and how?

This is the heart of the deal, and here the key questions are as follows:

1. What exactly are you licensing?

   1. Make sure you can name what it is you are providing clearly. This can be tricky, in particular if you have other customers who are competing with the licensee, and that are hence wanting similar licenses under exclusivity. Try to be specific as regards the software, the specific design(s), the specific type and scope of any content, the trademark(s), any patent, etc.

   2. Realistically licensing agreements may need some open-ended wording even though this opens up risks for disputes or issues in the future (such as is the case in relation to all more complex, or long-term, agreements where you should never – and no good lawyer would ever try – to outline exactly every eventuality and consequence as this will be impossible and only lead to more risks not less). However, to the furthest extent possible do avoid vague wording like “all related IP” unless you truly intend “everything you got”.

   3. Address what should happen to future IP, not least in relation to any joint IP that is developed during the licensing agreement (should you own it, should the licensee own it or you both jointly?). It is often the case that the set-up does give rise to new IP as the merger between your product (the licensed things) and the licensee´s product or offering - so keep this in mind.

      
      

2. Exclusive or non-exclusive?

   1. A big divider will be if the license will be exclusive or not. Being exclusive means that only that licensee can use the rights in a defined area/field. So neither you nor anyone else is allowed to use it. This will hence limit your possibility to profit from the IP from other customers or business partners within that area and or field.

   2. You can also chose to have it as a “sole” licensing. This means that both you and the licensee can use the rights, but you won’t license anyone else.

   3. Finally we have the non-exclusive licensing agreement where you are free to license the same thing to multiple partners.

   4. As should be obvious when looking at the above alternatives; be very careful with exclusivity. It sounds attractive to the licensee, but it can block your future options and revenue streams.

      
      

3. Territory

   1. A key component will be the actual territory that you are giving the license for. That is; where can the licensee use it? For example in:“Germany only”, “EU”, “North America”, “worldwide”.

   2. All else being equal, a more narrowly defined territory will serve to increase your possibility to get more revenue streams since you are giving up less for the same price. So if you want to protect future options you should often try to narrow it down, however that will be deal dependent.

   3. Furthermore, a well-defined and more narrow territory might be beneficial in order to ensure that you are not giving up more that you actually have a legal right to. Imagine that you license your product without a clear territory defined in the agreement, and the license holder starts to market the product in Asia - however in Asia you don’t own the relevant IP and therefore they get sued for copyright infringement and you end up with a bill that is big enough to jeopardize your whole company (see more below about liability issues).

      
      

4. Field of use

   1. As indicated above, the right to use your IP can be limited in several ways including in which industry or channel that the licensee may use your product.

   2. This can be a key way to ensure that any demands for exclusivity do not lock you in more than needed. For example you can give up exclusivity but then you narrow that down to “healthcare sector only”, or “online sales only”, or “retail, not e-commerce”.

      
      

5. Term (duration)

   1. Next in line of the key questions will be for how long the license should last. There will be many business judgements in this case given that there can both be incentives for you to keep the term long (secure revenue in some form) and keep it short (to not lock yourself in or limit the chance to increase prices). Should it be for a  1 year? 5 years? Until further notice? Should the licensee get renewal rights? Under what conditions?

      
      

6. Sublicensing

   1. Another key issue you should address is if the lincess may grant sublicenses (e.g., to distributors, subcontractors, franchisees) or not. Giving them such a right will limit your control and potentially your prospects of doing more licensing deals to other prospect that are instead engaged under a sublicense agreement. Often you as the license giver will prefer to keep this right limited in some form (or not allowed).

      
      

   2. However, if you are to allow sublicensing you should set up a structure in relation to the following:

      1. Do you need to approve them?

      2. Do you get sufficient information/ a copy of the sublicenses?

      3. Who is liable if a sublicensee misbehaves?

         
         

7. Modifications & derivatives

   1. Another matter of key concern will be if the licensee should be allowed to modify your product/your IP.

   2. And if you do allow this, then you need to address who owns the improvements (see above as regards new IP and potential of joint ownership) This could become a huge source of disputes if not handled clearly.

      
      

8. Money: How do you get paid?

   
   

   1. Typical models:

      1. Upfront fee

         1. One-time payment for the right to use the IP.

      2. Royalties

         1. Ongoing payments, often based on:

         2. Percentage of net sales or gross revenue

         3. A fixed amount per unit sold

         4. A fee per active user, license seat, or transaction

            
            

   2. Minimum guarantees

      1. This could be an attractive term that could be demanded if you are to eg allow for exclusivity in a certain field or territory. It entails that the licensee promises to pay at least a certain minimum per period (e.g., per year), regardless of sales.

      2. This requirement can also function as to ensure they actually push the product instead of letting it collect dust and hence that the royalty/payments surpass the minimum guaranteed.

         
         

9. Milestone payments

   1. For license agreements that concern IP rights that could be considered a novelty you often see a setup where you use milestones. That is payments triggered by events (launch, regulatory approval, target sales volumes, etc.). This can often mean that you, the licensor, will take more of a risk in the beginning, but this can be a way to close the deal and if you have a setup where you both profit from a successful launch/distribution.

   2. Important details in relation to payment:

      1. Define “net sales” very clearly (what can they deduct? taxes? shipping? discounts? returns?).

      2. Agree on reporting: how often do they report sales, in what format?

      3. Include audit rights: you can check their books (usually with notice, a limit per year, and at your own cost unless a big underpayment is found).

   3. Consider currency, exchange rate, and who bears taxes (withholding tax, VAT, etc.).

      
      

10. Quality control and brand protection

    1. As a final matter to consider in this part I about license agreement. Do also consider if your brand or reputation is involved. If so you must control quality by making sure you have specifications or standards that they must follow (e.g. brand usage guidelines).

    2. You can reserve the right to for example approve marketing materials using your name/logo, to inspect products/services for compliance, to require corrections if standards are not met, etc.

    3. For many product this is not only commercial but often legally required: if you don’t control quality, you can even risk weakening your IP/trademark rights in some jurisdictions.

       
       

Summary

Licensing can be a very prosperous and relevant business model, and knowing the angles to attack is not only legally sound, it may be the difference between you growing a successful business that scales beyond fields, territories and your own business limits. In Part 2 of this article series I will go through risks you need to protect yourself from and common mistakes I see – and how to avoid them. Author: Kat Strandberg

London 2025-11-25 Email: Kat@stgcommerciallaw.com