Licensee: Definition and Types

What Is a Licensee?

A licensee is any individual, business, organization that has been granted legal permission, or certain rights by another entity who owns certain assets, to engage in any activity related to these assets. This permission, or license, can be given on an express or implied basis.

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, by what is known as a licensing fee. Or they may make payments related to the results of the activities that the business arrangement facilitates. This is known as licensing revenue.

Some licensees may compensate license owners with ongoing fees, royalties, or another revenue-sharing arrangement.

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 certain key technologies may demand payment for licensing a technology's 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 information technology, science, biotech, and healthcare.
• The creator economy and Web 2 and Web 3 eras produced many creators who license their content, which includes courses, posts, articles, podcasts, and videos.
  

Licensee Types

Here are examples of some of the licensee/license types that exist in business.

Franchisee

Under a franchise agreement, the franchisee (or licensee) is granted permission to use the franchisor’s assets, such as a 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 Licensee

WIth brand licensing, the licensee is permitted to use a brand's trademarks and logos on its own manufactured products, such as sports apparel and toys.

For instance, a hit superhero movie may be released and generate a large fan base. The characters in the film are the property of the movie studio, but the studio decides to solicit licensing agreements from various producers of consumer goods that would allow those producers to use the characters on their products.

As a result, the likenesses of these characters may appear on clothing, posters, lunch boxes, and in games. They may also appear as action figures or dolls.

The producers of all these items are unaffiliated with the movie studio. Per their licensing agreements, they must pay fees or royalties to the studio to represent the movie's brand.

Operating Licensee

A licensee may be an entity that has been granted legal or regulatory permission to operate a business. Such a license is a mechanism for governments to oversee, and in many cases tax, certain business operators.

A liquor license is an example. By issuing the license, a city or county ensures compliance with local regulations regarding alcoholic beverages. It also 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 do business legally. These licensees 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., for banks).

A license to sell securities is a 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 of this type of license include the Series 7 and Series 63 licenses.

Real Estate Licensee

A licensee can have permission to access real estate. Typically, a licensee of a property has been granted express permission to make use of land by the landowner. 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 have 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.

Other Licensee Requirements

In addition to paying fees or sharing revenues for being granted a license, licensees are often subject to requirements that they treat the granted permission responsibly.

The aforementioned hunter is expected to leave the property in the condition that 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 the licensee to exploit the licensed rights, whether those rights relate to a public or private asset.

The Bottom Line

A licensee is any individual or entity that has received legal permission (or license) to conduct business activities that involve the use of assets belonging to another person or entity. For that permission, the licensee compensates the grantor of the license by payment of an upfront or periodic fee, or with a cut of the revenue they earn. Licenses can be explicit or implied.