Written by Éamon Chawke | November 4, 2026
Licensing your intellectual property (IP) can help you grow your business without building every product, entering every market or hiring every team yourself. From software and branded merchandise to content, designs and data, a licensing deal can turn existing IP assets into new revenue streams.
But licensing is not simply “passive income” backed by paperwork. A poorly structured deal can restrict future opportunities, weaken your commercial or legal position and cause problems when things go wrong.
The aim is to monetise your IP without giving away the farm. Here are some common mistakes to avoid.
Exclusivity can be attractive to a potential licensee, but it comes at a cost to your business. Depending on its terms, an exclusive licence could prevent you from working with other partners or exploiting the IP yourself within a particular market.
Imagine a software start-up granting one customer exclusive use of its software across an entire industry, only to discover later that a major commercial opportunity sits with another potential customer in the same sector.
Before agreeing to exclusivity, consider whether it is genuinely necessary. Could it be limited to a particular product, territory or period? Should it depend on minimum sales, payments or performance milestones? Should it be subject to termination (or conversion to a non-exclusive licence) in the event of a material change of circumstance (such as a termination of employment between the licensor and the licensee)?
The key commercial consideration/risk is that a licensee should not be able to tie up a valuable market indefinitely without delivering meaningful value in return.
An exclusive licence might become non-exclusive after an agreed period, if performance targets are missed or following a trigger event such as the licensor’s employment with the licensee coming to an end.
That sounds straightforward, but changing the label is not enough.
An exclusive licence will often expressly prohibit the licensor from granting further licences without the exclusive licensee’s consent. Unless that consent requirement is expressly stated not to survive the conversion to non-exclusive status, the original (previously exclusive) licensee could argue that they still have a contractual veto over new licensing arrangements.
The key point is that licences should expressly state that, once the licence becomes non-exclusive, the licensor no longer needs the original licensee’s consent to grant further licences. Expressly align the conversion/consent provisions with the parties commercial intentions, particularly where conversion happens automatically.
Before promising someone the right to use your IP, make sure you actually have the rights needed to grant that permission.
For start-ups, uncertainty can arise around contractor-created code, freelance designs, co-founder contributions and third-party content. Open-source software may also carry conditions affecting how a product can be used or distributed.
Uncertainty about your rights, as well as disclosure and other ‘copyleft’ obligations, can seriously undermine your commercial and legal position when it comes to new licensing deals, as well as investment and/or acquisition due diligence.
The key point is that you should never assume that, just because you paid someone to create something, or just because something was freely available to use, that thing is necessarily owned by you or free to be licensed by you without restriction.
Not every licensing risk can be solved by an agreement between the parties. Some concern the licensee’s position against third parties.
For example, in the UK, registering a licence of a registered trade mark with the UK Intellectual Property Office (UKIPO) is possible but not mandatory. Nevertheless, failing to register can have important consequences.
An unregistered licence may be ineffective against someone who acquires a conflicting interest in the trade mark without knowing about it. In addition, the Trade Marks Act 1994 prevents a licensee from availing of certain benefits and protections until/until the licence is registered with the UKIPO.
The potential consequences are illustrated by the Lifestyle Equities case ([2026] EWCA Civ 583). The case highlights the risk of what the judge called a “black hole”: the trade mark owner has the right to bring proceedings but has suffered no loss, while the licensee has suffered the loss but has no right to bring proceedings.
The key point is that, whilst a well-drafted licence will usually allocate responsibility for infringement claims and their costs between licensor and licensee, the document should also specify who is responsible for registering the licence.
An early licensing offer can feel like validation, particularly when it comes to a bootstrapped start-up from an established business. That excitement can make it tempting to accept terms that undervalue the IP.
Consider a young furniture designer, who is relatively unknown, licensing the manufacturing and distribution rights to an established industry player, in return for a modest fixed fee. Consider then that the designers audience and popularity grows substantially. In that scenario, without an appropriate payment structure or review mechanism, the designer/licensor is contractually tied to the fixed fee they originally agreed to, while the manufacturer/licensee benefits commercially from the growth in the designer’s popularity.
The key point is to think beyond the initial payment. Consider royalty structures based on usage/sales, minimum volume guarantees, and termination rights if the licensee ceases manufacturing/selling the licensed product/IP. The licensee should push for a share of the benefit if demand increases tenfold.
Phrases like “the licensor grants the licensee a right to use the technology” leaves a lot of questions unanswered.
Which technology? For what products? In which sectors? In which territories? Does the licence include improvements to the technology? What does ‘use’ mean?
In the current climate of uncertainty surrounding the use of AI, consider whether ‘use’ extends to AI training or model development (especially where art, code, data, music etc. are being licensed).
The key point is that you shouldn’t assuming that your understanding of what does or doesn’t constitute ‘use’ is shared by the other party to the licence. A well-drafted licence agreement should clearly set the parameters of the licence. Have an open discussion with the other party about: (a) what rights they actually need; and (b) what rights you need to retain, and draft the licence accordingly.
A licence agreement, like most contracts, has an important function as a regulatory document. It is a rulebook. It aims regulates the parties’ the behaviour, ideally without the need for legal/enforcement action, by setting what they are entitled to expect (their rights) and what is expected of them (their obligations). It follows, therefore, that signing the agreement (agreeing the rulebook) is not the end of the story. It is the beginning.
If royalty payments depend on sales volumes, consider how you will verify the figures. If your brand appears is to appear on products manufactured by someone else, consider how you ensure that quality standards and brand guidelines are followed, which is essential to protect your reputation.
The key point is that, while it’s important to write reporting requirements, audit rights, approval processes, quality standards and brand guidelines into the rulebook, it’s also important to use those provisions in practice to ensure all parties are playing by the rules.
Unfortunately, even the most promising commercial opportunity can fail for any number of reasons. A licensee may underperform, miss payments or take the product/IP in a direction you did not anticipate. Outside factors like pandemics, recessions, technological and regulatory changes, and changes in market conditions and/or consumer sentiment, can often lead to outcomes that couldn’t have been anticipated when the licensing deal was entered into.
Therefore, it’s essential to consider your exit strategy before signing. When and how can the licence by brought to an end, and what happens afterwards? Consider what happens to outstanding stock/inventory. Consider how confidential information and IP documents/materials will be returned/destroyed. Consider how ongoing relationships with suppliers, customers and other third parties might be impacted by the termination of the licence (especially if termination involves the transfer of personal data from the former licensee to the licensor). Finally, be clear about what survives termination and what doesn’t. Restrictions intended to protect the excusive nature of a licence should not inadvertently survive termination in a way that hinders the licensor’s ability to commercialise the IP in the future.
The key point is that a licensor should always have a clear exit strategy, and both parties should have certainty regarding what they can and cannot do post-termination.
A licence is more than just a document
A well-drafted licence does more than simply provide a mechanism for revenue generation. It should clear define the licensed IP and the parameters of the licence, so that it gives away no more than is necessary and leaves room for the licensor’s business to grow. It should expressly state the contracting parties’ respective rights and obligations, so that disputes down the line are avoided. It should be valued and priced correctly, with a mechanism that allows both parties to benefit from the commercial success of the licensed IP. And it should enable effective monitoring and enforcement after the rulebook has been written, so that both parties are incentivised to play by the rules.
Briffa are experts in all aspects of IP law and practice. If you are contemplating entering into a licensing deal, whether as a licensee or a licensor, please get in touch if you need assistance or advice.
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