What Is a Licensee?

A licensee is any business, organization, or individual that has been granted legal permission by another entity to engage in an activity. The permission, or license, can be given on an express or implied basis.

Licensees will compensate the owner of the license via fees, royalties, or some other revenue-sharing arrangement.

key takeaways

  • A licensee is some entity that has been granted permission to conduct activities using something that another party owns or controls.
  • The licensee may pay the licensor for the permission, or share revenue arising from activities arising from the permission.
  • Licensing agreements are common in several sectors, including media, entertainment, technology, and bio-pharma.
  • Types of licensee arrangements include franchises, brand licenses, and government licenses.
  • An operating license grants the licensee the legal capacity to conduct business.

Understanding Licensees

A licensee has received legal permission from another party to conduct some sort of business over which the other party holds some control, ownership, or authority. The licensee may pay outright for this permission, known as a licensing fee, or may make payments based on the results of the business arrangement, known as licensing revenue.

A licensee may pay the licensor for the permission, or share revenue arising from activities arising from the permission.

How Licensees Work

Many variations on the licensing relationship exist in the business world. Musical performances, recordings, and broadcasts often contain royalty agreements for licensing music. Software programs may include licensing agreements between corporate end-users and the copyright holders of the underlying code. Patent holders of certain key technologies may demand payment for licensing its use in other products (e.g., in consumer electronics or cars).

Media companies license the content that they air or stream from producers or content creators. Research and discoveries found by scholars at universities may be licensed to private companies or startups, especially in the fields of biotechnology and healthcare.

Some other common examples of licensee arrangements include the following:

Franchisees

Under a franchise agreement, the franchisee is granted permission to use the franchiser’s assets, such as supply chain, trademarks, or other intellectual property for a certain period of time. Typically, the franchisee is granted exclusive rights to those assets within a certain localized area.

Examples of franchisees include the owner-operators of many retail stores or restaurants including some fast food locations.

Brand Licensing

In brand licensing, the licensee is permitted to use a licensor’s trademarks and logos on its own manufactured products, such a sports apparel or toys.

For instance, a hit superhero movie may be released that generates a large fan base. The characters in the film are the property of the movie studio, but they decide to solicit licensing agreements from various producers of consumer goods. As such, the likenesses of these characters may appear on clothing, posters, lunch boxes, and in games. They may also appear as action figures or dolls. Note that the producers of all these items are unaffiliated with the movie studio and must pay fees or royalties per the licensing agreements that represent the movie's brand.

Operating License

A licensee may also be an entity that has been granted legal or regulatory permission to operate. Such a license is a mechanism for governments to oversee, and in many cases tax, certain business operators. A liquor license is an example of this type. By issuing the license, a city or county ensures compliance with local regulations regarding alcoholic beverages and receives an additional revenue stream specifically associated with the sale of alcohol.

Many types of businesses are required to obtain an operating license before being able to legally do business. These can range from food trucks to banks. Operating licenses can be granted at various levels of governance from local or state governments (e.g., for food trucks) all the way up to federal regulators (e.g., in the case of banks).

A license to sell securities is a sort of similar permission granted on a state or nationwide basis. National licenses are granted by Financial Industry Regulatory Authority (FINRA), a private regulatory authority that enforces the rules governing registered brokers and broker-dealer firms in the United States. Examples include the Series 7 and Series 63 licenses.

Implied License

An implied license can be a more ambiguous relationship, as no express permission has been legally granted. The classic example is the implied permission a firefighter has to enter a burning building, even if the owner is not present to formally approve the entry. In business, this concept tends to involve a licensee interpreting communications with a licensor as implied permission to make use of an asset.

Real Estate Licensees

An important use of licensee refers to permissions granted to access real estate. Typically, a licensee of a property has been granted express permission to make use of land by the owner. The property in question is not open to the general public.

A common example used in law schools is that of a hunter who has written permission to hunt on a landowner’s property. Without this permission, the hunter would be considered a trespasser and under very little legal protection from hazards encountered while hunting there. Nor could the hunter be considered an invitee, a legal term to describe a guest with recourse to take legal action in response to damages suffered while in the property.

Special Considerations for Licensees

In addition to paying any fees or revenues associated with being granted a license, licensees are often subject to requirements that they treat the granted permission responsibly. The hunter is expected to leave the property in the condition they found it. The securities broker is required to recommend investments appropriate to the client. The liquor store operator is prohibited from selling to underage customers.

A license does not grant free rein to exploit the licensed rights, whether they be to a public or private asset.

Frequently Asked Questions

What is a licensee of a property?

A licensee is one who has been given limited permission to use or occupy a property (physical or intellectual property). The licensee will pay or compensate the actual owner of the property for its use, the terms of which will be spelled out in a licensing agreement. As such, the tenant of a rented apartment may be construed as a licensee of sorts.

What is the difference between a licensor and a licensee?

The licensor is the owner of some property (or the rights thereof) that grants permission to a licensee to use them, in return for compensation.

What is a license holder business?

This term implies that a business has applied for and holds a valid license, obtained from the proper authority, to legally operate or do business in a certain location or locations.

What is a licensing agency?

A licensing agency is a broker that brings together license owners with potential licensees and arranges licensing agreements between these parties. A licensing agent may approach the owner of a license to see if they would be interested in such an arrangement.