You have just sent your logo, your product photos or your software to a customer, and they have come back with a one-page "licence to use" document for you to sign. Or the position is reversed: you own the brand and a supplier has asked for written permission to use it in their own marketing. Either way, the document in front of you is an intellectual property (IP) licence agreement, and the drafting inside it will decide who can do what with your IP for years to come.
A licence agreement is permission, not a sale. The owner of the trade mark, copyright, patent or design keeps ownership and lets someone else use the IP on stated terms. An assignment, by contrast, transfers ownership itself, and under the Copyright Act 1968 (Cth) an assignment of copyright has no effect unless it is in writing and signed by or on behalf of the assignor (s 196(3)). A licence can be oral, but the safer course is a written agreement that records exactly what use is permitted. The agreement also does something less obvious: it can bind later owners of the IP. Under s 196(4) of the Copyright Act 1968 (Cth), a licence granted by the copyright owner binds every successor in title to the copyright. If you licence your IP and then sell it, the buyer takes the IP subject to the licence you have already given, which is one reason the drafting matters before any deal is done.
The clauses that decide who can use your IP
What exactly is being licensed
The grant clause is the heart of the agreement, and it starts with a precise description of the IP itself. A registered trade mark should be identified by its registration number and the goods or services it covers. A copyright work should be identified by title, version and format. A patent should be identified by number and claims. Vague language such as "all IP in the product" is where disputes begin, because one product usually contains several separate layers of IP:
- Identify the IP: registration numbers, version numbers, the territory of each registration.
- List the permitted acts: reproducing, publishing, displaying, using in a product, incorporating into marketing materials.
- Carve out what is not permitted: making derivative works such as translations, adaptations or new arrangements of music.
- State who owns any new material: for example, a software licensee who modifies the code needs to know whether the modification belongs to them or to you.
The Copyright Act 1968 (Cth) itself allows rights to be split up finely. Section 196(2) lets an assignment be limited to particular classes of acts, to a place in or part of Australia, or to part of the period of copyright. A licence can be carved up the same way. If the agreement does not do that carving explicitly, a court will read the words the parties actually used, and a licensee who was given "the right to use the software" may end up with more than you planned.
One further trap deserves attention. If what you are really granting is the right to carry on a business under your brand and your system, with you controlling how that business is run and the other party paying you for the privilege, the arrangement can be a franchise agreement under the Franchising Code in Schedule 1 of the Competition and Consumer (Industry Codes — Franchising) Regulation 2014 (Cth), whatever the document is called. The Code's definition in clause 5 turns on the right to carry on a business under a system or marketing plan substantially determined by you, association with a trade mark owned or licensed by you, and payment to you. If those elements are present, obligations follow, including a 14-day cooling-off period for the franchisee under clause 26. A licence of a photograph to sit on a website will never be a franchise. A licence that lets someone open shops under your brand and run them your way may well be.
Exclusive or non-exclusive
The next choice is whether the licensee has the field to themselves. An exclusive licence means the licensee is the only person who may use the IP in the agreed scope. A non-exclusive licence means you can licence the same IP to other businesses at the same time, and use it yourself.
The law treats this choice differently across the IP types, which matters when the document is drafted:
- For copyright, an exclusive licence must be in writing and signed by or on behalf of the owner. The definition in s 10(1) of the Copyright Act 1968 (Cth) requires a licence in writing, signed by the owner, authorising the licensee to the exclusion of all other persons. An oral promise of exclusivity is not an exclusive licence under the Act.
- For patents, an exclusive licensee is defined in the Patents Act 1990 (Cth) as someone licensed to exploit the patented invention throughout the patent area to the exclusion of the patentee and all other persons.
- For trade marks, the Trade Marks Act 1995 (Cth) has no concept of an exclusive licence at all. It speaks of "authorised users" under s 8, and exclusivity is whatever your contract says it is.
There is also a subtlety in the word itself. Under an exclusive licence you usually cannot use the IP yourself, because the licensee is the only one entitled to use it. If you want to keep using your own brand or your own software alongside the licensee, the agreement needs to say so, either by making the licence non-exclusive or by expressly reserving your own right of use.
How long the licence runs
The term clause sets the length of the arrangement. It can be a fixed period, such as three years, or it can run indefinitely until one party ends it in accordance with the agreement. Many licences tie the term to the commercial purpose: a licence of images for a campaign might last 12 months, while a licence of a brand for use on a product line might run as long as the product is sold.
The drafting choices that matter are the renewal mechanism and what happens at the end:
- Does the licence renew automatically, or does it need an active step?
- What notice period applies if either party does not want to renew?
- What happens to stock, packaging or marketing material that already carries the IP when the term ends?
- For trade marks, a registration can be renewed indefinitely, so the licence term does not have to track the life of the mark. For copyright, the term of protection is much longer than almost any commercial licence needs, so the commercial term, not the statutory life of the IP, should drive the drafting.
Can you take the licence back
A revocable licence lets the owner withdraw permission, generally on notice, at any time. An irrevocable licence cannot be withdrawn simply because the owner has changed their mind. The practical point that drafting often muddles is that "irrevocable" does not mean "unterminable". An irrevocable licence can still be terminated if the licensee breaches the agreement, because the termination clause operates independently of the revocability characterisation.
If you are the licensor, decide which of these you want:
- Revocable on notice: maximum flexibility, but weak if the licensee is investing in your IP, for example building a product around your software.
- Irrevocable for a fixed term: the licensee can invest with confidence, and you give up the right to change your mind.
- Terminable for breach: whatever the revocability position, the agreement should allow termination where the licensee fails to comply, usually after a cure period, and immediately for serious breaches such as misuse of the IP or non-payment.
Who else can use the IP
Two clauses deal with people beyond the original parties: assignment and sublicensing. Assignment is the transfer of the licence itself to another party, which commonly happens when the licensee sells its business. Sublicensing is the licensee giving its own customers or contractors the right to use the IP.
As the licensor you will usually want to control both. The variants the other side pushes for are:
- Freely assignable licence: the licensee wants to be able to sell its business without asking permission.
- Assignment with consent: you keep the right to veto a new licensee, with a standard that consent will not be unreasonably withheld.
- No sublicensing: the licensee cannot give access to third parties, which keeps the relationship and the revenue stream with you.
- Sublicensing with flow-through: the licensee may sublicence, but every sublicence is on the same terms as the head licence, and any sublicence fees form part of the royalty base.
There is a trap on your side of the table as well. Because a licence binds successors in title under s 196(4) of the Copyright Act 1968 (Cth), if you grant a licence and later assign the copyright, the new owner inherits the licence. If you are selling IP that is already licensed, the sale price should reflect that the buyer takes it subject to the existing licence.
Where the IP can be used
The territory clause states the physical scope of the licence: Australia only, one state, or worldwide. Two legal realities should shape how it is drafted.
First, registered rights are territorial. A trade mark registered under the Trade Marks Act 1995 (Cth) gives you exclusive rights to use the mark and to authorise others to use it in relation to the registered goods and services (s 20). Those rights are Australian. The same mark may be registered to someone else in Germany, and your Australian registration does nothing to stop their use there. A worldwide licence of a mark therefore depends on where the mark is actually registered, and the licence should not promise more territory than the registrations cover.
Second, the territorial limit interacts with exclusivity. A licence can be exclusive in Australia and non-exclusive elsewhere, or exclusive in one state and not in another. The drafting should state the territory for each scope of use rather than assuming one territory applies to everything.
What the licensee pays
The payment clause is where the commercial deal is recorded, and it is a frequent source of later disputes when the figures are loosely defined. The main drafting choices are:
- Lump sum: a single payment for the whole licence, simple but with no ongoing link to the value the licensee gets.
- Running royalty: a percentage of revenue or a per-unit amount, which requires a clear definition of the base.
- Minimum annual royalty: a floor that keeps the licence commercially meaningful and gives you a reason to terminate if the licensee is not using the IP.
- Sublicence income: how fees the licensee collects from sublicensees are shared, if sublicensing is allowed at all.
The royalty base needs the most attention. If the royalty is a percentage of the licensee's revenue, the agreement should say whether that is gross or net revenue, what deductions are allowed, and whether revenue from sales to related companies counts. An audit right, discussed below, is the practical enforcement mechanism for a running royalty.
Quality control and your trade mark
Trade marks have their own statutory logic that a licence needs to respect. Under s 8 of the Trade Marks Act 1995 (Cth), use of a mark by an authorised user only counts as an authorised use to the extent the mark is used under the control of the owner, and the owner is taken to exercise control where it controls the quality of the goods or services (s 8(3)). This matters for two reasons.
First, the registration can be attacked for non-use. Under s 92 of the Trade Marks Act 1995 (Cth), anyone can apply to remove a mark that has not been used in Australia for a continuous period of three years. If your licensee's use of the mark does not count as authorised use by you, because the licence does not give you control, that use may not protect the registration from removal.
Second, infringement proceedings. An authorised user can bring an infringement action with the owner's consent, or in some circumstances without it (s 26 of the Trade Marks Act 1995 (Cth)), so the licence should record who is entitled to sue and who controls any settlement.
The practical drafting consequence is a quality control clause: approval rights over marketing material, quality standards the licensee must meet, inspection rights, and a right to withdraw approval of particular uses. That clause is not bureaucracy. It is what keeps the trade mark valid.
What happens on breach or termination
The termination clause sets out what each party can do when the relationship fails, and what happens to the IP afterwards. The essential mechanics are:
- Events of default: non-payment, breach of quality standards, misuse of the IP outside the permitted scope, insolvency.
- Cure periods: a period, commonly 14 to 30 days, to fix a remediable breach before termination takes effect.
- Immediate termination: for serious breaches that cannot be cured, such as using the IP outside the licence scope.
- Wind-down: a period after termination to sell existing stock or finish committed work, which prevents the licensee's customers being left stranded.
- Return and destruction: obligations to return or destroy copies of the licensed material, and to certify that this has been done.
- Survival: clauses that continue after termination, such as confidentiality, payment of accrued royalties, and any indemnities.
Optional clauses that earn their place
Several clauses are situational, worth including when the deal has a particular shape:
- Audit rights: include when royalties are based on the licensee's reported figures, so you can inspect their records and verify the payments.
- Ownership of improvements: include when the licensee will develop or adapt the IP, such as translations of your book or modifications of your software, and decide who owns the new material.
- Change of control: include when the licensee could be bought or restructured during the term, so a competitor does not inherit the licence by default.
- Most-favoured terms: include when you plan to licence the same IP to several businesses, so later, cheaper deals do not undercut this one.
How an Artificer Legal lawyer reviews a licence agreement
A licence agreement looks simple because it is short. The value of a lawyer's review is in the questions behind each clause. An Artificer Legal practitioner would start with the grant clause and test what the words actually cover, then check the formalities: whether an exclusive licence is in writing as the Copyright Act 1968 (Cth) requires, whether a trade mark licence builds in the control that s 8 of the Trade Marks Act 1995 (Cth) demands, and whether the territory promised matches the registrations you actually hold.
We would also look at the deal behind the document. If the arrangement is really a business format under your brand, we would assess the franchise risk before the agreement is signed rather than after a dispute starts. If royalties are running, we would check the base, the audit rights and the minimums. If the licence is meant to survive a sale of your business or theirs, we would check the assignment provisions on both sides. The order in which we negotiate matters too: scope first, then exclusivity, then money, then term and termination, because each earlier clause determines how much the later ones are worth.
Why the grant clause decides the whole deal
If one clause makes the difference between a licence agreement that works and one that does not, it is the grant clause that opens the document. Every other clause, exclusivity, territory, term, royalties and termination, operates on the rights the grant clause creates. Draft the grant too broadly and you have licensed more than you meant, priced too cheaply what you gave away, and locked yourself out of your own IP. Draft it too narrowly and the licensee cannot do what they paid for. The discipline is to read the grant clause as if you were a stranger to the deal and ask what a court would say it covers.
A licence agreement is a permission slip with commercial consequences. Ownership stays with you, the permitted use is what the grant clause says it is, and the surrounding clauses for exclusivity, term, territory, payment, quality control and termination define the boundaries of that permission. Trade mark licences need control built in to stay valid, exclusive licences of copyright need writing, and a licence that looks like a business format may be a franchise. Checked clause by clause, the document can protect what is yours while letting someone else build on it.