What is a key characteristic of a licensing agreement?

A licensing agreement is primarily defined by its function, which involves one party granting permission to another to use its intellectual property in exchange for compensation, typically in the form of royalties. This type of agreement is common in various industries, including technology, fashion, and entertainment, where the original owner of the intellectual property (the licensor) allows another party (the licensee) to utilize branding, patents, copyrights, or trademarks without transferring ownership of the property itself.

This arrangement supports innovation and allows the licensor to generate revenue from their intellectual property without needing to engage directly in the markets where the licensee operates. The licensee benefits by gaining access to established brands or inventions, which can provide a competitive advantage or enhance product offerings without the time and cost associated with developing these assets independently.

Understanding this core function helps clarify why the other options do not represent the defining characteristics of a licensing agreement. For instance, licensing is not always exclusive, as multiple licensees can operate simultaneously under non-exclusive agreements. The essence of a licensing agreement is in the use of intellectual property without the transfer of ownership, which distinguishes it from agreements that require creating new entities or transferring complete ownership.