The Licensee's payment

The licensor’s interest in granting a license is normally the prospective income involved. The licensee’s payment for the license may take several forms, and the various forms can be combined in different ways. An up-front payment is a payment which is to be made when the license agreement is signed. If no further payments are required, the license becomes a paid-up license. If the licensee is required to pay certain amounts if and when various milestones are met – e.g. after proof of concept, when phase 2 of the clinical trials is initiated etc. – the payments are called milestonepayments. When the amount to be paid by the licensee depends on the extent of the licensee’s exploitation of the invention – typically a percentage of the relevant part of the licensee’s turnover – the payment obligation is termed an obligation to pay a royalty.

The word "license" is quite often – but erroneously – used as the term for a running fee paid by the licensee to exploit the patented invention, if this fee in some way reflects the extent of the exploitation. The correct term for such a running fee for a license is a "royalty".