License Grant
A license grant clause gives one party permission to use the other party’s intellectual property within defined limits, without transferring ownership.
What it does
Most software, content, and data in B2B contracts is licensed, not sold. The supplier keeps ownership and grants the customer a right to use. The license grant clause defines that right, and everything not granted is reserved to the owner.
The scope is built from a handful of standard terms. Exclusive or non-exclusive: whether the licensor can grant the same rights to others. Territory: worldwide, or limited to certain countries. Term: for the duration of the agreement, or perpetual. Revocable or irrevocable. Transferable or not. Sublicensable or not. Then the permitted use: the number of users, seats, devices, or sites, and the purpose, usually the customer’s internal business operations.
The clause is typically paired with restrictions: no copying beyond what is needed, no modification or reverse engineering, no use for the benefit of third parties, no use to build a competing product. Breach of the restrictions is usually a ground for termination and may also be copyright infringement.
Example wording
Subject to the Customer’s compliance with this Agreement and payment of the Fees, the Supplier grants the Customer a non-exclusive, non-transferable, non-sublicensable licence during the Term to access and use the Software for the Customer’s internal business purposes, by up to the number of Authorised Users specified in the Order Form. The Customer shall not copy, modify, reverse engineer, or make the Software available to any third party except as expressly permitted in this Agreement.
Risks for SMBs
The scope is narrower than how you actually use it. “Internal business purposes” excludes using the software to provide services to your own clients. “Authorised Users” may exclude contractors. “One site” may not cover a second office. If actual use exceeds the licence, you are in breach and may face back-charges. Map your real use case against the grant before signing.
Affiliates are not covered. A licence to “the Customer” does not automatically extend to group companies. If a sister company will use the software, say so.
Perpetual is not the same as irrevocable. A perpetual licence can still be terminated for breach. If you have paid a large one-off fee, ask for the licence to be irrevocable except for a defined, serious breach, with a cure period.
Termination ends access to your own data. When a SaaS licence ends, so does your right to log in. Make sure the contract gives you a window to export data after termination.
Reverse engineering bans that go too far. In the EU, software users have certain legal rights, such as making a backup copy and studying how the program works, that a licence cannot remove. Wording that tries to is unenforceable to that extent. This is jurisdiction-dependent.
Licences given by SMB suppliers that are too wide. Granting a customer a “perpetual, irrevocable, worldwide, sublicensable” licence to your platform, when you meant a subscription, is a drafting mistake with long consequences.
Common variants and negotiation points
- User definitions. Define Authorised Users to include employees, contractors, and affiliates working for the customer, with the customer responsible for their compliance.
- Usage metrics. Prefer a metric you can measure and control (named users, sites) over one that is vague (revenue, “reasonable use”).
- Transfer on sale. Ask for the right to assign the licence to a buyer of the business, so the licence does not block a sale.
- True-up rather than breach. Agree a periodic reconciliation with payment for extra users at list price, instead of treating overuse as a breach.
Related clauses
- IP ownership: who owns what the licence permits you to use.
- Audit rights: how the licensor checks compliance with the grant.
- Assignment: whether the licence can be transferred.
- Termination for cause: breach of licence restrictions is a common trigger.
This page is general information about a common contract clause. It is not legal advice and does not account for your jurisdiction, industry, or the specific contract in front of you. Talk to a qualified lawyer before relying on it.
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