Licence agreement: a guide to IP rights

What is a licence agreement?

A licence agreement is a legally binding agreement where the owner of an intellectual property right, typically called the licensor, gives another party, the licensee, permission to use the right within the framework of the agreement. The licensor keeps ownership; the licensee gets a right of use.

Intellectual property covers a broad spectrum: software, music, books, photographs, trademarks, patents, design rights and trade secrets. What they all have in common is that they cannot be physically handed over. That is precisely why a clear, written licence agreement is decisive. Without one, serious uncertainty can arise about what is actually permitted.

When do you need a licence agreement?

You need a licence agreement when:

• You want to give others permission to use your software, music, images or brand
• Your business wants to use third-party software or content in production
• You franchise your concept or trademark to other businesses
• A consultant creates material you want the right to use going forward, but the consultant keeps the copyright
• You enter a joint venture where IP rights are shared or cross-used

As a rule of thumb: if you transfer a right of use without transferring the ownership itself, it is a licence agreement.

The four types of licence agreement

1. Software licence agreement

By far the most widespread type in Danish business. The software licence agreement sets out which users may use a program, on which devices, for which purposes and for what period. SaaS products (software as a service) typically base their whole business model on software licence agreements.

Important elements in a software licence agreement:

• The number of users or installations
• Is the source code included, or is it only binary or SaaS access?
• The right to further development (modification)?
• What happens to data on termination?

2. Trademark licence agreement

Gives the licensee the right to use a trademark, typically a logo, name or slogan. Trademark licence agreements are central in franchise models, collaborations and distribution agreements.

Trademark law requires the licensor to exercise control over the licensees' use of the mark. If you give others the right to use your trademark without control, you risk the mark losing its distinctiveness and, in the worst case, its protection.

3. Patent licence agreement

Gives the licensee the right to produce, use or sell an invention protected by a patent. Patent licence agreements are especially relevant in the pharmaceutical, technology and engineering sectors.

Patent licence agreements are usually complex and should always be reviewed by a legal specialist with experience in patent law.

4. General IP licence agreement (copyright licence)

Covers all other copyright-protected works: photographs, illustrations, texts, music, film and other creative content. The Copyright Act protects such works automatically from the moment of creation; no registration is required.

A photographer can, for example, license an image for use in a particular campaign for a particular period without ceasing to own the image or selling it to others in other contexts.

The legal foundation in Denmark

Licence agreements in Denmark are primarily governed by three acts:

The Copyright Act protects literary and artistic works as well as software. Copyright arises automatically; no registration is required. The Act gives the author exclusive rights to dispose of the work, and these rights can be licensed on.

The Trademarks Act governs the use of registered and unregistered trademarks in Denmark. Trademarks are registered with the Danish Patent and Trademark Office and give an exclusive right to use the mark within the registered classes of goods and services.

The Patents Act protects technical inventions that are new, involve an inventive step and can be applied industrially. A patent can last for up to 20 years from the application date.

In addition, the Contracts Act applies to all contractual relationships in Denmark, including licence agreements. That means unreasonable terms can be set aside, and agreements entered into under duress or deception can be declared invalid.

The most important clauses in a licence agreement

A solid licence contract should as a minimum contain these elements:

1. The scope of the licence

Define precisely what is being licensed. An unclear description is the most frequent starting point for disputes. Be specific:

• Which specific work, mark or patent?
• For which purposes (commercial, non-commercial, internal use)?
• In which media or channels (digital, print, TV, social media)?
• In which products or services?

2. Exclusivity

A licence can be exclusive or non-exclusive:

• Exclusive licence: only the licensee may use the right within the agreed area. The licensor cannot give the same right to others and in some cases cannot use it themselves either.
• Non-exclusive licence: the licensee shares the right of use with others. The licensor can license the same right to several parties.
• Sole licence: an in-between, where the licensor may still use the right themselves, but no other licensees are given access.

Exclusivity has a major influence on pricing; an exclusive licence is typically far more expensive than a non-exclusive one.

3. Territory

In which geographic areas does the licence apply? Denmark alone? The Nordic region? The EU? The world? This is especially important for trademark and patent licences, where rights can vary from country to country.

4. The licence period

State clearly:

• The start date of the licence
• The end date (a time-limited licence) or whether it is open-ended
• The conditions for renewal

5. Royalties and fees

Set the payment model:

• A fixed fee: a single amount for the licence, regardless of turnover
• Royalty: a percentage of the turnover or sales generated by using the right
• A combined model: a base fee plus royalty
• A free licence: use is permitted without a fee, for example in open source contexts

State in addition the invoicing frequency, currency, default interest on late payment and, for royalty licences, the licensee's obligation to make accounts available.

6. Sub-licences

May the licensee give third parties permission to use the right further? As a rule not, but if it is necessary (for example in distribution agreements), it must be stated explicitly.

7. Termination

Define:

• The ordinary notice period
• The breach clause: when can the agreement be cancelled without notice? (non-payment, breach of the licence scope, bankruptcy)
• The consequences of ending: handing back material, deleting digital access, settling outstanding royalties

8. Quality control (especially for trademark licences)

As mentioned, trademark law requires licensors to exercise control over the use of the trademark. Insert specific control mechanisms: approval of marketing material, a right of inspection and quality standards.

9. Confidentiality

Licence agreements usually involve sharing confidential information: business plans, technical documentation, source code. Include a confidentiality clause or refer to a separate confidentiality agreement.

10. Choice of law and venue

State that Danish law applies and where disputes are decided, for example before the Maritime and Commercial Court for certain commercial cases or via arbitration.

Licence agreement vs. assignment agreement: a decisive difference

One of the most widespread misunderstandings in practice is confusing a licence agreement and an assignment agreement (also called an IP transfer).

	Licence agreement	Assignment agreement
Ownership	Remains with the licensor	Transferred to the buyer
Right of use	Limited, as agreed	Full
Duration	Can be time-limited	Permanent
Price	Ongoing royalties or a lump sum	Typically a lump sum
Revocation	Possible under certain conditions	Not possible

A typical mistake arises when a business pays a freelancer to develop a logo, a website or a piece of software and thinks it owns it. Without an explicit assignment clause in the contract, the freelancer still owns the copyright and has only given the business a right of use.

If the aim is a full takeover of the rights, you should use an assignment agreement. If you want to keep the flexibility and continue to own and reuse the right, a licence agreement is the right choice.

The most common mistakes in licence agreements

1. No written agreement. Oral licence agreements are legally valid in Denmark but in practice almost impossible to prove and enforce. Always make a written agreement.

2. Too vague a licence scope. "The right to use our software" is not enough. For what? By whom? How many users? In which systems? The more specific, the better.

3. Forgotten sub-licence provisions. Businesses that base products on licensed technology often forget to secure the right to grant sub-licences, for example to their customers or partners.

4. No control mechanism for trademark licences. Licensors of trademarks who do not exercise control risk weakening the protection of their own mark.

5. No rules on ending. What should happen to already produced products, marketing material or digital files when the licence expires? Do not leave it unclear.

6. Unclear royalty calculation. "5% of turnover" sounds simple, but what is the base? Gross turnover? Net turnover? Turnover related to the licensed product? Unclear royalty formulas are a frequent cause of disputes.

Open licences and open source: special rules

Open source software is licensed under standardised licence models such as MIT, Apache 2.0, GPL and LGPL. These licences give broad rights, including the right to use, modify and distribute source code, but impose requirements in return.

The GPL licence is, for example, copyleft: if you build a product based on GPL code and distribute it, your product must itself be made available under the GPL. That is a critical consideration for commercial software businesses.

The use of open source components in commercial software should always be examined as part of a legal review.

Best practice for licence agreements in Denmark

• Always start with a written agreement, whether it is with an old partner or a new contact.
• Be precise about the scope and purpose; the more specific, the easier it is to enforce and avoid misunderstandings.
• Consider exclusivity carefully; it is a valuable right that should be priced accordingly.
• Insert clear provisions on ending; what happens to material, access and outstanding payments?
• Combine with a confidentiality agreement; licence agreements almost always involve sharing confidential information.
• Have a lawyer review agreements of high commercial value, especially for patent and trademark licences.

Conclusion

A licence agreement lets you exploit the value of your intellectual property without giving up ownership. The key is a precise definition of the scope, exclusivity, territory, period and fee, together with clear rules on control, sub-licences and ending. For licences of high commercial value, and especially for patent and trademark licences, a lawyer should review the agreement.

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This content is purely informative and does not constitute legal advice. Contact a lawyer for specific advice on your situation.