What Is a Licensee?

What Is a Licensee?

Let me tell you directly: a licensee is any individual, business, or organization that has been granted legal permission, or certain rights, by another entity who owns specific assets, to engage in activities related to those assets. This permission, or license, can come on an express or implied basis.

Key Takeaways

Here's what you need to know: a licensee is an entity granted permission to conduct activities using something another party owns or controls. The licensee might pay the licensor for this permission or share revenue from the resulting activities. You'll find licensing agreements in sectors like media, entertainment, technology, and bio-pharma. Types include franchises, brand licenses, and government licenses. An operating license gives 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 control, ownership, or authority. You, as a licensee, may pay outright for this permission through what's known as a licensing fee. Or you may make payments tied to the results of the activities facilitated by the arrangement—this is licensing revenue.

Some licensees compensate license owners with ongoing fees, royalties, or other revenue-sharing setups.

License Relationships

Various licensing relationships exist in the business world. Musical performances, recordings, and broadcasts often involve 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 key technologies may demand payment for licensing their tech's use in other products, like in consumer electronics or cars. Media companies license content they air or stream from producers or creators. Research and discoveries by university scholars may be licensed to private companies or startups, especially in IT, science, biotech, and healthcare.

In the creator economy and Web 2 and Web 3 eras, many creators license their content, including courses, posts, articles, podcasts, and videos.

Important Note

Normally, a licensing arrangement between you as a licensee and the licensor is a mutually beneficial financial relationship. It can sometimes generate significant revenue for both parties.

Licensee Types

Let me outline some examples of licensee types in business.

Franchisee

Under a franchise agreement, you as the franchisee (or licensee) are granted permission to use the franchisor’s assets, such as a supply chain, trademarks, or other intellectual property, for a certain period. Typically, you're given exclusive rights to those assets within a specific localized area. Examples include owner-operators of many retail stores or restaurants, like some fast food locations.

Brand Licensee

With brand licensing, you as the licensee are permitted to use a brand's trademarks and logos on your own manufactured products, such as sports apparel and toys. For instance, a hit superhero movie generates a fan base, and the studio owns the characters but solicits licensing agreements from producers of consumer goods to use those characters on their products.

As a result, character likenesses appear on clothing, posters, lunch boxes, games, action figures, or dolls. These producers are unaffiliated with the studio but must pay fees or royalties per their agreements.

Operating Licensee

You as a licensee may be an entity granted legal or regulatory permission to operate a business. This license allows governments to oversee and often tax certain operators. A liquor license is an example: by issuing it, a city or county ensures compliance with local regulations on alcoholic beverages and gains revenue from alcohol sales.

Many businesses need an operating license to operate legally, from food trucks to banks. These can be granted at local, state, or federal levels. A license to sell securities is similar, granted by FINRA, with examples like Series 7 and Series 63 licenses.

Real Estate Licensee

You as a licensee can have permission to access real estate. Typically, you've been granted express permission to use land by the landowner, and the property isn't open to the public. A common example is a hunter with written permission to hunt on a landowner’s property—without it, they'd be a trespasser with little legal protection.

They couldn't be considered an invitee, who has legal recourse for damages suffered on the property.

Fast Fact

An implied license is more ambiguous, as no express permission is granted. The classic example is the implied permission a firefighter has to enter a burning building, even without the owner's approval. In business, this might involve you interpreting communications as implied permission to use an asset.

Other Licensee Requirements

Beyond paying fees or sharing revenues, you as a licensee are often subject to requirements to treat the granted permission responsibly. The hunter must leave the property as found. The securities broker must recommend appropriate investments. The liquor store operator can't sell to underage customers.

A license doesn't give you free rein to exploit the rights, whether public or private assets are involved.

What Is a Licensee of a Property?

You as a licensee have limited permission to use or occupy a property (physical or intellectual). You'll compensate the owner for its use, with terms in a licensing agreement. Thus, a tenant in a rented apartment could be seen as a type of licensee.

What Is the Difference Between a Licensor and a Licensee?

The licensor owns the property or rights and grants permission to you as the licensee to use it, in return for compensation.

What Is a License Holder Business?

This means a business that has applied for and holds a valid license from the proper authority to legally operate in certain locations.

What Is a Licensing Agency?

A licensing agency is a broker that connects license owners with potential licensees and arranges agreements. An agent might approach a license owner to explore such arrangements.

The Bottom Line

In summary, you as a licensee are any individual or entity with legal permission to conduct business activities using assets belonging to another. For that permission, you compensate the grantor with upfront or periodic fees, or a revenue cut. Licenses can be explicit or implied.