License Agreement

A license agreement is a contract under which a licensor grants another party permission to use specified intellectual property, software, technical data, or related rights under defined conditions. The licensor keeps ownership of the rights. The licensee receives only the permissions the agreement sets out, along with any restrictions, fees, and obligations attached to them.

In Canadian federal procurement, license agreements most often come up in defence-related goods and manufacturing, and in software purchases. CanadaBuys treats them alongside royalty payments and technical-assistance agreements as matters to plan for in the procurement strategy. UK Ministry of Defence guidance describes software licensing as a contract between the software publisher and the end user, and uses the alternative name End User License Agreement (EULA).

Rights a license agreement can cover

CanadaBuys lists the rights that may be involved: inventions, patents, copyrights, trade secrets, trademarks, technical data, know-how, and industrial designs. A single agreement can combine several of these. A manufacturing licence, for example, can pair patent rights with technical data and know-how so that the licensee can build a product to the licensor's design. The guidance is on the CanadaBuys royalty payments and license agreements page.

Who enters the agreement: the contractor or Canada

On defence-related goods and manufacturing contracts, the contractor typically enters into the license agreement. In some cases Canada enters the agreement in its own name instead. The contracting authority must consider whether the license should be held by Canada or by the contractor, and must consult Legal Services.

Where Canada is the licensee, the agreement can address a range of matters:

• Manufacturing rights
• Use of the licensor's patents and designs
• Technical assistance
• Provision of plans and drawings
• Engineering support
• Modification rights
• Rights to have goods built or repaired by parties other than the licensor

Royalty approval thresholds

Royalties are a common financial term in a license agreement. Under CanadaBuys guidance, a royalty of 5% or less of the selling price of the patented item requires approval from the Director. A royalty above 5% requires Deputy Minister approval before the contract is entered into. When a procurement requires or is expected to require royalty payments, technical assistance, or manufacturing licenses, the contracting authority must address them in the procurement strategy.

Software licences and government copying rights

Treasury Board guidance on commercial off-the-shelf "shrink-wrap" software notes that the product's terms may include a license agreement, and that the terms may be accepted only after the product is opened or downloaded. The same guidance states that the term of a purchased license may be perpetual, which allows use for as long as the purchaser wants. See the Treasury Board policy notice.

The Government of Canada also uses license agreements for copying rights. Its Government of Canada Copying Licence was renewed to cover April 1, 2026, to March 31, 2027.

Outside Canada, UK Ministry of Defence guidance requires projects to identify their software-license requirements, acquire appropriate licenses, provide evidence of acquisition, and document how licenses will be managed throughout the system's life. The rule is in JSP 604 Rule 18.

What it means for a supplier

If your bid depends on third-party intellectual property, work out early who will hold the license. You may need to provide or negotiate it, identify the licensed rights and their restrictions, and obtain the licensor's authorization. You must then comply with the agreement's technical, usage, royalty, and intellectual-property conditions. Royalty levels can also trigger higher internal approvals on the Canadian side, so build that into your pricing and schedule.