Licence agreements are powerful tools for Australian businesses looking to commercialise intellectual property (IP), share confidential know-how, or expand through franchising – without giving up ownership.
Whether you’re licensing a trade mark, proprietary software, or technical drawings, understanding how licence agreements work under Australian law is crucial for managing risk and protecting your business interests.
This guide, prepared by our intellectual property law team, is tailored for business owners, in-house counsel, and entrepreneurs. We’ll break down key legal concepts, types of licence agreements, and practical drafting tips to help you make informed decisions.
Key Takeaways
A licence agreement grants permission to use rights like IP without transferring ownership.
Written agreements are strongly recommended and required for certain rights like patents.
Licence agreements differ from assignments and franchise agreements.
Statutory regimes apply to IP rights like trade marks and patents; confidential information is protected under common law.
All licence agreements must comply with Australian contract law and relevant statutory obligations.
What is a Licence Agreement?
A licence agreement is a legally binding contract where the owner of rights (the licensor) grants another party (the licensee) permission to use those rights in a defined way. Ownership stays with the licensor – only the right to use is granted.
Key Features of Licence Agreements
- Can be formal or informal, but written agreements are strongly recommended for enforceability
- May be exclusive, sole, or non-exclusive
- Governed by common law principles and, where relevant, statutory requirements
Common Types of Licence Agreements in Australia
1. Trade Mark Licence Agreements
Under the Trade Marks Act 1995 (Cth), the owner of a registered trade mark can grant others permission to use it, provided the licensee uses the mark under the owner’s control.
Example: A café chain licenses its brand logo to franchisees who must follow strict quality standards. The chain retains ownership of the trade mark while controlling its use.
Remember: Failure to monitor use may result in loss of trade mark registration or breaches under the Australian Consumer Law!
2. Franchise Agreements
A franchise is a special type of licence agreement that goes further – bundling trade mark use with business systems, branding, training, and marketing.
Franchises are regulated by the Franchising Code of Conduct under the Competition and Consumer Act 2010 (Cth), which imposes legal obligations around disclosure, good faith, and dispute resolution.
Franchise vs. Simple Licence
Feature | Franchise Agreement | Simple Licence Agreement |
Business System | Included | Not required |
Trade Mark Use | Required | Optional |
Payment Structure | Often includes upfront and ongoing fees | May be a one-off or royalty |
Regulatory Code | Franchising Code of Conduct applies | General contract law/statutes apply |
3. Copyright and Patent Licences
These agreements permit the use of copyrighted works (like plans, software, music, or text) or patented inventions under the Copyright Act 1968 (Cth) and Patents Act 1990 (Cth).
Tip: Patent licences must be in writing to be legally enforceable.
4. Licensing Confidential Information and Know-how
While not governed by a specific statute, confidential information (e.g. formulas, internal processes, business strategies) is protected by common law and equity. Licence agreements for confidential information should include:
Non-disclosure clauses
Use limitations
Consequences for breach
5. Building and Construction Licence Agreements
Separate from builder’s licences (issued by state authorities), these agreements may involve:
Patented construction technology
Copyrighted architectural plans
Software tools like BIM systems
Applicable legislation includes the Copyright Act, Patents Act, and relevant state-based building codes.
Key Elements of an Effective Licence Agreement
Every licence agreement should clearly address:
- Nature and scope of the licence (exclusive, non-exclusive)
- Subject matter (description of IP or asset)
- Territory and term
- Payment or royalty arrangements
- Quality control and audit rights
- Termination clauses and breach consequences
- Dispute resolution procedures
Tip: Statutory consumer guarantees under the ACL may also apply, even in B2B arrangements – ensure compliance to avoid penalties.
Learn the top 5 mistakes when drafting commercial contracts in our article.
Federal and State Law Considerations
Most intellectual property licences fall under federal law. However, real property and construction-related licences may be subject to state laws (e.g., NSW building licensing).
Always check both federal and state requirements.
Case Study: Trade Mark Licensing Gone Wrong
A local manufacturer licensed its brand to a distributor but failed to set quality standards or monitor use. The distributor produced inferior products, damaging the brand’s reputation. The trade mark registration was challenged for lack of control – highlighting the need for robust quality control provisions.
If you need assistance drafting or reviewing a licence agreement, contact our experienced team today to ensure your rights are protected and your agreements comply with all Australian legal requirements.
Need help drafting, reviewing, or negotiating a licence agreement? At Prosper Law, we provide clear, commercially focused legal advice tailored to your business goals. Our experienced business lawyers can help you:
- Protect your intellectual property
- Ensure legal compliance
- Avoid costly disputes
Frequently Asked Questions
What is the difference between a licence and an assignment?
A licence grants permission to use rights without transferring ownership; an assignment transfers ownership entirely.
Do all licence agreements need to be in writing?
While some can be informal, written agreements are strongly recommended – and mandatory for patent licences and highly advisable for intellectual property.
How does a franchise agreement differ from a standard licence?
Franchise agreements include additional business system and operational requirements and are regulated by the Franchising Code of Conduct.
What happens if I do not control how my trade mark is used?
Failure to exercise control may risk loss of trade mark registration and potential breaches under the Australian Consumer Law.
Are there specific laws for licensing confidential information?
Confidential information is protected by common law and equity; agreements should include non-disclosure clauses for added protection.
Can I licence my building plans or software to others?
Yes – copyright law allows you to licence plans or software, provided you retain ownership and comply with statutory requirements.
What are the risks of poorly drafted licence agreements?
Risks include misuse or loss of IP rights, ambiguous terms, disputes over scope or payment, and exposure to consumer law penalties.
