License-Granting Language Is Just Another Contract Provision

Yesterday I revisited the question of the relationship between a license and the contract that grants the license.

This issue arose in connection with a trademark license agreement I’ve been redrafting. The original version says that the license is “nonassignable,” and I’ve been contemplating deleting that adjective on the grounds that the question of assignment of the license would be covered by the general nonassignment provision included in the contract boilerplate.

If this all sounds familiar, it’s because it cropped up in this August 2008 post on license-agreement granting language. So I revisited the issue with Michael Fleming, who in the comments to that post was the principal advocate of the position that a license is distinct from the contract granting that license. Yesterday he repeated in an email to me the gist of his argument:

I’m still of a mind that the license arises independently from the contract, much like a purchase agreement for a house is a different thing than the house itself. The license is the widget. Thus, rules that apply to the license should be clearly attached to the license separate from the rules that apply to the agreement, much as you would attach a covenant that goes with the land in a real estate transaction.

I’m not crazy about the house analogy. For one thing, my selling you a house is very different from my letting you use my trademarks—in the former transaction you get the widget, whereas in the latter you just get the right to use the widget.

But more importantly, any discussion of the meaning of contract language has to start with semantics. I suggest that in this case, the semantics indicate that granting language in a license agreement is simply a variant form of language of discretion and as such is simply a creature of the contract, like any other provision.

Consider the follow provisions:

  • Acme hereby grants Widgetco a license to use the Marks in …
  • Acme hereby grants Widgetco the right to use the Marks in …
  • Widgetco may use the Marks in …

They all convey the same meaning. What distinguishes the first from the other two is that it seeks to flag that discretion is being accorded with respect to something that Acme controls. But such control wouldn’t be inconsistent with the other two variants. (In the absence of such control, the first two variants would be preposterous.)

When you can convey the same meaning in different ways yet you accord a special significance to one of those ways, then—Hey presto!—you have magic-wordery, the enemy of rational drafting. In terms of the semantics, granting a license is just one way to accord a party discretion under a contract. Debating whether a license arises independently of the contract, or instead is covenant not to sue and therefore part of the contract, is to miss the point.

I haven’t yet researched how this plays out in the caselaw—as long as I’m clear in my drafting, I needn’t concern myself too much with other people’s messes. But it would be rash of me to expect the rest of the world to think like I do: Although I think it’s only logical to treat license-granting language as just another contract provision, I’ll make it clear, for purposes of the trademark license agreement I’m redrafting, that the general nonassignment provision applies to the license-granting language.

I imagine some people will have strong views on this subject. I’d be happy to hear them.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

14 thoughts on “License-Granting Language Is Just Another Contract Provision”

  1. You really ought to read Cincom v. Novelis from the 6th Circuit just a few months ago before you send that provision back to the client. It’s pretty clear (at least in that circuit) that assignment provisions for software licenses simply do not work like in normal contracts. As you’ll see from that case, copyrights are just plain weird – they’re governed by federal statutes and weird federal common law.

  2. randomjohn: Cincom v. Novelis, 581 F.3d 431 (6th Cir. 2008), has no bearing on the issue I discuss in this blog post, namely whether there’s any obstacle to addressing nonassignment of a license in a general nonassignment provision rather than in the granting language. In that case, it so happens that the court cited nonassignment language in both the granting language and a general provision.

    Instead, the case relates to the issue of the extent to which, in the face of nonassignment provisions, courts are willing to permit transfers by operation of law.


  3. There is a distinction between a license and the means by which the license is conveyed. The license is intellectual property, the metes and bounds of which are defined by the license agreement. Unlike real property, where the right to use another’s real property is not itself real property, the right to use another’s intellectual property is itself intellectual property.

    * * *

    I agree that in most instances the inclusion of the words “nonassignable” in the license grant clause is unnecessary if there is a prohibition on assignment in the general nonassignment provision. Many agreements, however, provide that the license survives the termination of the agreement. If the surviving license is to be nonassignable, then I believe it is good practice to include the nonassignability language in the license grant section.

  4. Ken:

    I see a license grant being a special case of legal drafting. I think the proper analogy is not between a license and a house; the proper analogy is between a license and a real property deed.

    A contract of sale in a real property transaction commits the parties to buy and sell the real property. The actual transfer of title is reflected in the deed. The ownership rights stated in the deed and implied by background law say what the owner can do with the house.

    Likewise, a contract commits the parties to grant and receive the license. The actual license can be stated separately (which I have seen in numerous instances, such as bulk license purchases) or integrated with the contract (which I see much more often). The license rights stated in the license and implied by background law say what the licensee can do with the subject matter of the license.

    To me, that implies that a license grant is a special kind of legal drafting, mainly because you have to be aware of the background law at stake, and know where the substantive law has taken a “magic words” approach. Not being a real estate lawyer, I can’t say whether it is true that there are magic words in real estate transactions, but there certainly seem to be based on the few real estate transactions I have seen. I know that there are magic words in intellectual property licenses. For example a failure to recite that you are licensing both the trademarks “and the goodwill associated with them” can cause your trademarks to expire.

    Now, all that being said, the way I would want to actually draft a separate trademark license would be to call it “Trademark License” in the title, then say “The licensee may use the trademarks (and the goodwill associated with them) to [do whatever it is]. This license lasts until either party terminates it as permitted below.” Etc. After all, a license is only a subset of general drafting, so I would only deviate where needed to handle issues raised in the background law.

    Chris Lemens

  5. Oh dear, how confusing! From my English law perspective:

    1. An IP licence is a contractual permission to do something which would otherwise infringe the IP. It should not be regarded as a property right. Therefore it does not have a life separate from the contract and there is no need to refer to assignment of the licence separately from assignment of the contract.

    2. If any analogy can be drawn with real property, is not with deeds of transfer (which might be considered analogous to IP assignments), but rather with leases or, more probably, licences to occupy property. But this analogy has limited usefulness, in view of the encrustation of centuries of case law, which has created wierd and wonderful property and quasi-property rights for lessees, mortgagees and others.

    3. Yes, transferees of real property may have rights or obligations that are independent of any underlying contract, but that is a historical peculiarity of land law that is not relevant to IP assignees, and certainly not relevant to IP licensees.

    Therefore, IP licences have much less need of magic wording than real property transfers.

  6. Put me in the camp that the granting clause is something different from the underlying agreement, but its drafting is just a subset of contract drafting.

    There is a difference between something in the license and something in the agreement. Moving a provision from the license to another part of the contract may not always give you the same result. This is the case for the types of remedies available. If you breach a license in a contract, you can get infringement remedies, not just contract remedies. For instance, if a patent license is limited to “sell in California.” Then using the intellectual property in Utah is not breach of contract, it’s infringement. In that case, you are not limited to contractual remedies.

    As it impacts “nonassignable,” you have to ask the question: is there any way that the license could continue without the agreement itself. Unlike patents and copyrights, this seems like an unlikely situation for a trademark since use of a trademark is usually heavily restricted by the contract itself (rights to inspect, etc.) because of the nature of trademark law. In this case, the license should be limited to compliance with the agreement.

    As for how to properly limit a license, the recent copyright case of Jacobsen v. Katzer ( is instructive. In that case, the Fed. Cir. drew a very important distinction that changed the remedies available to the plaintiff in a copyright dispute from contractual (which is what the district court held) to copyright infringement. The lesson is that the license itself imposed a limits on the scope of the license. There may be similar trademark cases, but I don’t have them in front of me.

    In the case of a trademark license, it may be as simple to simply condition the grant on compliance with the agreement itself.

  7. A practical peril that I’ve seen often with either separate provisions within a document or separate documents addressing a license is that the language conflicts and creates ambiguity. As you advocate, clear drafting is critical, whatever one’s approach.

  8. Further to Mike’s point, under certain circumstances it may be advantageous to include what otherwise might look like unnecessary redundancies in the license agreement: limitations in the license grant language and corresponding covenants elsewhere in the agreement.

    For example, a license grant might specify that the patent license is limited to sales within a particular industry. Selling patented products outside of the scope of the license would be an infringement of the patent, giving rise to rights and remedies available for infringement, but it might not be a breach of contract. Selling patented products in violation of a covenant would be a breach of contract, giving rise (perhaps) to termination rights and damages for breach, but it might not be an infringement. Including the limitation in both places would help to ensure that the licensor would have recourse for both infringement and breach of contract if licensee were to sell patented products outside of the industry.

  9. Ned: Say something in one place and the implications are X; say it somewhere else in the same contract and the implications are Y. That looks like magic words to me.

    I think the problem is that IP has become a semi-autonomous speciality, so IP drafting has started to mutate independently of general transactional drafting. It would be better for all concerned if there were more cross-breeding.


  10. Ken: I do not disagree with your conclusion.

    Unfortunately, statutes have not been written, and common law has not evolved, in a manner that fits within a style of drafting devoid of magic words and counter-intuitive implications. Without an understanding of the law of negotiable instruments, for example, a drafter might believe that “pay” is no different from (and always preferable to) “pay to the order of”.

    While your advocated style of drafting may make for elegant and generally unambiguous contracts, drafters must take into account the legal framework under which the contract is drafted. I certainly believe it wise for contract drafters to question the significance of what appear to be magic words. But they should not thoughtlessly discard the arcane tried-and-true because they’ve been told that there’s no such thing as magic.

  11. Ned: Sure, the first priority of any drafter is to accomplish a stated goal, not to create a thing of beauty that falls foul of messy reality.

    But that doesn’t mean you have to stick with magic. You can instead adopt the approach of a post-modern magician and do the trick, but with all illusion stripped away, so the audience sees exactly what’s going on.

    In practical terms, maybe one could add to a license agreement a “provision specifying drafting conventions” that is explicit as to the relationship between the license and the rest of the contract.

    And thank you for mentioning pay to the order of. I should look into that.


  12. Ken:

    In a draft of a license where the difference between contract and license was important (because the licensees were consumer who might not have the legal capacity to contract), I specified that “shall not” meant a contractual prohibition and “may not” meant a limitation on the license. (I did so in much simpler language, though.) Then I assiduously avoided saying that the licensee “shall not and may not” do something, because it made me sick to my stomach.

    Then I did something completely different and didn’t use that draft. Instead, I used “you agree to . . . ” and “we permit you to . . . but not to . . . “. It worked fine, but only because it was a short document carefully written to an 8th grade reading level. At least it didn’t turn my stomach.

    I always understood “pay to the order of Joe” to mean that the instrument is negotiable and Joe can instruct the bank whom to pay, where “pay Joe” means that the bank is to pay Joe, not someone else. But maybe I made that up.


  13. I’m with Ned and Mike on this one.

    As noted by Mike in referencing Jacobson v. Katzer, the courts distinguish between what I will call “core rights” owned by and licensed out by the IP owner and non-core rights that are nevertheless important to the parties. By “core rights” I mean those rights that define the type of intellectual property, such as the exclusive rights to copy, distribute, display and perform, etc., for copyrights.

    Thus, I tend to distinguish the “license” or “license grant” to be the contractual provisions (written or otherwise) by which the IP owner specifies the extent to which the licensee may exploit the core rights (regardless of whether magic words like “license” or “right” or “permission” are used). The other provisions of any agreement are certainly important and binding, but they are not part of the core license, as I see it.

    Does this distinction have a difference? I think the difference as noted in Jacobson v. Katzer, is found in the remedies for breach. Breach a core right, and you have an “infringement,” for which irreparable harm may be presumed, which in turn increases the likelihood of the court granting injunctive relief. The presumption does not apply to breaches of non-core rights.

    From a policy standpoint, I think Ken’s approach makes sense. The distinction of “license” rights v. “covenants” of a contract seems like hocus pocus. Wave your wand over the contract, and breach of certain provisions leads to an injunction more easily than breach of other provisions. However, the current policies have developed precisely because intellectual property rights are rights in intangibles, not rights in hard goods, so enforcement is that much more dependent on injunctive relief from the courts.

    The jumping off point for this was a trademark license. Trademarks are that much more interesting (at least to me ;-) ) because they are not rights in gross, but appurtenant rights to goodwill. In drafting a license agreement for a trademark, you are not only tracking the core rights that state the goods and services with which the licensee may associate a mark, you are also tracking the flow of goodwill generated by the use of the mark.

    Regarding assignability, I often state in the license grant that the license is “nonassignable (except pursuant to the provisions of Section ),” or “nonassignable (except pursuant to the assignment provisions stated in this agreement).” It ties the two provisions together.

    Let me know your thoughts,

    Fred Wilf


Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.