Creating a Patent License Agreement

If you're a patent owner who's ready to create a patent license agreement, learn about the different types of patent license agreements and how to draft them.

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creating a patent license agreement

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Updated on: July 24, 2025
Read time: 3 min

A patent license agreement is a contract between a patent owner (licensor) and a licensee that defines the terms under which the licensee may make, sell, and use a patented invention. The agreement also provides how royalties will be paid to the patent owner.

A patent license agreement rests on a desk under a pair of eyeglasses, a pen, and notebook.

Types of patent license agreements

The three main types of patent license agreements are exclusive, nonexclusive, and sole licenses, which assign different rights to the parties involved:

  • An exclusive patent license agreement gives a single licensee all of the rights to produce, sell, and use the invention.
  • A nonexclusive patent license agreement also transfers these rights, but it allows the licensor to negotiate and sign agreements with others.
  • A sole license is somewhere in between these two in that it allows both the licensor and licensee to use the invention, but generally, the licensor agrees not to grant additional licenses.

Keep in mind that these are the broad definitions, though, and the agreement's provisions should be as specific as possible when delineating the rights of both the licensor and the licensee.

Drafting a patent license agreement

While the terms of individual patent license agreements vary, a standard license agreement for a design, utility, or plant patent generally should include at least the following provisions:

  • Royalties. The most important aspect of the patent license agreement is usually how royalties will be paid. There are many considerations regarding how to structure royalty payments, including whether you should request a minimum or guaranteed payment, and whether royalties will be calculated based on profits or net proceeds.
  • License term. Some products have a longer shelf life than others, so determining how long the license agreement should last can make a big difference in your royalties. You may consider including a clause that allows for the termination of the contract with certain triggering events (low sales, for instance) or having the agreement cover only a certain period of time with the option of renewal.
  • Annual license fee for patent agreement. This provision provides that the licensee must pay the patent owner a certain amount yearly to retain the license. The amount may remain the same, or the agreement may also stipulate, for instance, that the amount increases when certain triggering events happen.
  • Dispute resolution. Should things go awry, your agreement should provide how disputes will be resolved, whether through arbitration or litigation, as well as which state's laws will govern.

Benefits of licensing a patent

You’ll receive ongoing compensation from royalties.

There is an opportunity to generate substantial revenue by licensing to a well-known company that already has consumers’ confidence.

A licensee can financially assist in enforcing a patent against infringers and has a commercial incentive to do so. Patent infringement is expensive, and it is often difficult for a patent owner alone to afford litigation costs.

Provisional patent license agreement

If you have a provisional patent—meaning that you have a patent pending, rather than granted to you—it is possible to begin negotiating with licensees, although reduced royalties are likely to be a condition of the contract. In any event, with provisional patents, the inventor should consider licensing the invention as a "trade secret" or at least include a provision in the agreement that also covers trade secrets so that the licensee cannot turn around and use the invention if a patent isn't eventually granted.

Overall, because patent license agreements can be complicated and you want to make sure all the issues are appropriately covered, you may want to consult with an attorney to guide you through this tricky area of intellectual property law.

If you still need to patent your intellectual property and you have a good understanding of how to apply for a provisional patent, or to file your design patent or utility patent, you may choose to work with an online service provider so that you'll be ready to initiate future patent license agreements.

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This article is for informational purposes. This content is not legal advice, it is the expression of the author and has not been evaluated by LegalZoom for accuracy or changes in the law.

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Contents

Updated on: July 24, 2025
Read time: 3 min



Find out more about filing a patentStart Now
Twitter logoFacebook logoLinkedIn logoReddit logo

This article is for informational purposes. This content is not legal advice, it is the expression of the author and has not been evaluated by LegalZoom for accuracy or changes in the law.

83 days ago
Trustpilot star rating bar

Jose is the best.

Jose was very friendly and knowledgeable. He was able to answer my questions and provide me information of next steps to secure my trademark.

Cheryl Cooper
86 days ago
Trustpilot star rating bar

The knowledge the agent possessed was…

The knowledge the agent possessed was super beneficial to rectify the situation I was having with my trademark. Very professional!

Craig Schsrfman
102 days ago
Trustpilot star rating bar

Trademark work is great and effecient

Edit from my previous feedback and why i decided to give them 5stars they deserved: LegalZoom's support team was excellent—they addressed my concerns promptly and delivered a great outcome. I truly appreciate their help and want to give a shout-out for an outstanding customer service experience.

Trademark
101 days ago
Trustpilot star rating bar

Thanks for being so helpful in the…

Thanks for being so helpful in the assist of getting my Trademark filed. -Patrick

Patrick Thompson
108 days ago
Trustpilot star rating bar

Kevin was able to help me understand…

Kevin was able to help me understand the process needed for filing a trademark. He was clear in his answers and stayed on the phone to help walk through the onboarding.

Asiyah Lites-Rasheed
126 days ago
Trustpilot star rating bar

Excellent Serviceed them for a trademark application

Used them for a trademark application. Excellent service. Knowledgeable staff. I would absolutely use them again. Probably save thousands by going through them.

Eric Hertz
153 days ago
Trustpilot star rating bar

Estee was super helpful!

Estee helped me navigate the tricky trademark process. Highly recommend her!

Greg
153 days ago
Trustpilot star rating bar

Very good and focused answers

I got a very good and focused answer to my trademark questions. Definitely makes me see LZ as the place to go with my legal questions. A+

Chip Humitz
157 days ago
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Help with trademark

Got exactly what I needed to register my trademark

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163 days ago
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I had a consultation with an attorney…

I had a consultation with an attorney through LegalZoom concerning the trademark process. and she was very patient and professional. She answered my questions and helped with the ones I had difficulty asking. I appreciated that

Isiah Jones ,jr.
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Strong support for trademark

The trademard support by Nick Belcastro has been excellent.

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189 days ago
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Excellent service

Excellent service! Extremely knowledgeable and helpful in reviewing all the next steps in the process for filing the trademark with LegalZoom.

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224 days ago
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Excellent Staff/Services

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Register Trademark using LegalZoom

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wiltrey sanders
229 days ago
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Excellent experience with Legal Zoom

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Legally create your trademark with LegalZoom in 2025 and The Years to Come

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