An operating license is a contractual agreement between two parties in which the holder of intellectual property rights (the licensor) grants another party (the licensee) the right to use certain intellectual property (IP) rights such as patents, trademarks, copyrights, etc. under negotiated and specified conditions outlined in the contract.
Here are some key elements associated with an operating license:
- Nature of the granted rights: The operating license specifies the rights that the licensee is authorized to exercise over the licensed intellectual property. This can include the right to manufacture, sell, distribute, promote, reproduce, modify, etc.
- Duration and territory: The license must specify the period during which the licensee is authorized to use the intellectual property as well as the geographical territories where this use is allowed.
- Compensation: The license agreement includes provisions on the compensation that the licensee must pay to the rights holder/licensor in exchange for the use of the intellectual property. Compensation is typically based on a fixed royalty or a percentage of sales.
- Restrictions and conditions: The license may contain restrictions on how the intellectual property can be used as well as specific conditions that the licensee must comply with such as quality standards, confidentiality obligations, etc.
- Warranties and liabilities: The license agreement may specify the warranties provided by the rights holder regarding the licensed intellectual property as well as liabilities in case of intellectual property rights infringement by the licensee or other breaches of the license agreement.
Operating licenses are commonly used in fields such as patents, software, pharmaceuticals, the entertainment industry and many others to allow companies to commercialize and profit from their intangible intellectual property assets while maintaining control over their use.