Intellectual property (IP) refers to patents, copyrights, trademarks, and trade secrets. These expressions are products of the mind or intellect, and may legally belong to the creator, just like with tangible objects. IP laws confer a bundle of exclusive rights specific to the form in which ideas or information are expressed—such as a creative work or an invention—and these exclusive rights generally protect their holders from unauthorized reproduction or commercial exploitation of their intellectual property.

The holders of these rights, however, may license their use by others, and frequently do so. Licensing has become a multi-billion dollar market, and some businesses make more money by letting others use their name or products than by any activities they actually perform. A company or person with intellectual property protected by law who wishes to license that property enters into a licensing agreement with a user, and that agreement becomes a contract, governed by applicable contract laws, which can vary from state to state. International licensing agreements also may be subject to additional regulations, depending upon what is being licensed and how it will be used.

An intellectual property license also varies with what is being licensed, but generally has several common components, including a specified length of time, agreement as to where the license is valid, provision for renewal, and any limitations the licensor deems important to the agreement. Sometimes, other laws will limit what limitations may be imposed in a licensing agreement. In most licensing agreements, the licensee pays a fee to the licensor in order to use his or her intellectual property for financial gain.

Trademark Licensing

Trademarks are also protected intellectual property, generally in the form of a word, symbol, shape, or any sign, that is affixed to a product to indicate its source and distinguish it from other goods. A trademark holder can license that trademark, often referred to as a mark, to an individual or entity, who may then distribute products under that mark. Without a licensing agreement between those parties, anyone using a mark protected as the property of another would be subject to penalties for trademark infringement.

Intellectual property recognizes trademark rights in part to protect the public, as people come to associate a trademark with certain products and can then rely on the fact that goods bearing that mark will be consistently of the same origin and quality when they make purchasing decisions. Therefore, trademark holders must enforce their right to use the mark, and if they fail to do so, may be found to have abandoned the trademark, leaving it open to use by anyone.

The same legal requirement of enforcement applies to trademark licensing: A trademark owner who licenses the mark must specify in the licensing agreement that the owner is entitled to approve the licensee's use of the mark and oversee the quality of whatever the mark is being affixed to by the licensee. The failure to so specify in the trademark licensing agreement is called naked licensing and a court may find that the mark holder has abandoned the mark, thereby losing any rights under the law to use it. Even if the licensing agreement contains such a provision, the mark owner must actually oversee what the licensee is using the mark for, or a court may find the owner has abandoned the mark.

Artwork and Character Licensing

Copyright is a form of legal protection provided to the authors of "original works of authorship" that includes literary, dramatic, musical, artistic, and other intellectual works, such as poems, plays, books, movies, musical compositions, photographs, drawings, software, audio recordings, radio and television broadcasts of performances, and choreographed works such as dances.

A copyright holder may enter into a license agreement granting an individual or organization permission to reproduce, distribute, or take some other action involving copyrighted works. Absent such a licensing agreement, anyone who copied or distributed copyrighted material could be subject to penalties laws preventing copyright infringement.

Patent licensing

A patent is a grant of a property right to an inventor for an invention that is new, inventive, and useful or industrially applicable. Patents are issued by the United States Patent and Trademark Office (USPTO). A patent gives the inventor an exclusive right to the invention for a specific period of time. Because a patent grants an inventor the right to exclude others from making, using, or selling the invention, only a licensing agreement between the patent owner and another person or company will allow the use or sale of the invention by someone other than the patent holder.

Companies that do a great deal of research and development of new products and technologies that become patented may enter into cross-licensing agreements, whereby two parties share patents without paying the normally required licensing fee.

Software licensing

Computer software is frequently licensed for use by the developer for profit. Many people use computer software in their homes or businesses, but they may only do so because licensing of the software has occurred. Otherwise, intellectual property protections would give the software developer the exclusive right to use the software.

The license may take the form of an end-user license agreement (EULA) that the software developer entered into with a computer manufacturer, so that whoever purchases the computer may use the software installed on it. Alternately, the licensing agreement may be directly entered into between a developer and user of the software. A software licensing agreement is usually complex. It will set forth specific rights of a licensee to use the software as well as limitations on those rights. If the licensee does not abide by the terms of the licensing agreement, he or she will be acting in violation of intellectual property laws protecting the software, and will also be subject to any penalties specified in the software license.