80-20 Rule

What is a licensee?

A licensee is a business, organization or individual who has received legal permission from another entity to engage in an activity. Authorization or license may be given either express or implied.

Understanding licensees

A licensee has received legal permission from another party to carry out a kind of activity over which the other party has some control, property or authority. The licensee can pay directly for this authorization, known as a license fee, or can make payments based on the results of the trade agreement, called license revenue.

[Important: The licensee may pay the licensor for the permission, or share revenue arising from activities arising from the permission.]

Many variations of this relationship exist in the business world. Here are some common examples of licensee arrangements.


Under a franchise agreement, the franchisee is allowed to use the franchisor’s assets, such as the supply chain, trademarks or other intellectual property for a certain period of time. As a general rule, the franchisee is granted exclusive rights over these assets in a certain localized area.

Trademark license

In terms of brand license, the licensee is authorized to use the brands and logos of a licensor on his own manufactured products, such as sportswear.

Government license

A government license is a mechanism for local governments to supervise and, in many cases, tax commercial operators. An alcohol license is one such example. By issuing the license, a city or county guarantees compliance with local regulations regarding alcoholic beverages and receives an additional source of income specifically associated with the sale of alcohol.

A license to sell securities is a similar kind of authorization granted nationally – although technically speaking, it is not granted by the government, but by the Financial Industry Regulatory Authority (FINRA), a private regulatory authority which applies the rules governing brokers and brokers in the United States.

Implied license

An implicit license may be a more ambiguous relationship, since no express permission has been legally granted. The classic example is the implicit authorization that a firefighter must enter a burning building, even if the owner is not present to formally approve the entry. In business, this concept generally implies that a licensee interprets communications with a licensor as an implied authorization to use an asset.

Key points to remember

  • A licensee is a business, entity or individual who has legal authority to conduct activities using something that another party owns or controls.
  • The licensee may pay the licensor for the permission, or share the revenues from the activities arising from the permission.
  • Commercial examples of license agreements include franchises, brand licenses and government licenses.

Real estate permit holders

Significant use of the license holder refers to the authorizations granted to access the property. Typically, a property licensee has received express permission to use the land from the owner. The property in question is not open to the general public.

An example commonly used in law schools is that of a hunter who has written permission to hunt on the property of a landowner. Without this authorization, the hunter would be considered an intruder and with very little legal protection against the dangers encountered during hunting. The hunter also cannot be considered a guest, a legal term to describe a guest with recourse to bring legal action in response to damage suffered on the property.

Special considerations for licensees

In addition to paying fees or revenues associated with the granting of a license, licensees are often subject to the obligation to treat the permission granted responsibly. The hunter should leave the property in the state in which he found it. The stockbroker is required to recommend suitable investments to the client. The operator of a liquor store is prohibited from selling to underage or drunk customers.

A license does not grant freedom to exploit the rights granted, whether public or private.

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