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A Non-Exclusive License to Manufacture Agreement is a legally binding contract in which an intellectual property owner (the licensor) grants a manufacturer (the licensee) the right to produce physical goods using the licensor's patents, trade secrets, or proprietary manufacturing processes — while explicitly preserving the licensor's freedom to grant the same rights to other manufacturers. Unlike an assignment, the licensor retains ownership of the IP. Unlike an exclusive license, no single manufacturer holds a monopoly on production. The agreement defines exactly which IP may be used, in which territory, for which products, on what royalty terms, and to what quality standards — creating an enforceable commercial relationship that protects both parties' interests across the full production lifecycle.
Manufacturing someone else's patented technology or proprietary process without a written license agreement exposes the manufacturer to patent infringement liability, which can include injunctions stopping production, disgorgement of profits, and damages of up to three times actual damages in the US for willful infringement. For the licensor, allowing a manufacturer to use protected IP without a written agreement risks implied license claims, uncontrolled quality degradation, and the loss of trade secret protection if confidentiality obligations are never formally established. A properly executed non-exclusive manufacturing license locks in the royalty rate, caps the licensor's warranty exposure, preserves audit rights to detect underpayment, and gives both parties a clear exit path if the relationship deteriorates. Without it, every unit produced under a handshake arrangement is a liability exposure with no contractual ceiling.
| If your situation is… | Use this template |
|---|---|
| Granting a single manufacturer sole production rights in a territory | Exclusive License to Manufacture Agreement |
| Licensing software or digital products rather than physical goods | Software License Agreement |
| Licensing a brand or trademark for use on manufactured goods | Trademark License Agreement |
| Licensing technology for sale or distribution without manufacturing rights | Technology License Agreement |
| Assigning all IP ownership outright rather than licensing it | IP Assignment Agreement |
| Engaging a manufacturer under a service relationship without IP transfer | Manufacturing Services Agreement |
| Licensing a full portfolio of patents to a manufacturer | Patent License Agreement |
Why it matters: Courts in several jurisdictions have interpreted ambiguous license grants as exclusive, preventing the licensor from signing additional licensees and significantly reducing the IP's commercial value.
Fix: State 'non-exclusive' explicitly and prominently in the grant clause and the agreement's title. Do not rely on the absence of exclusivity language to imply it.
Why it matters: Without a precise list of permitted deductions, licensees may subtract freight, agent commissions, returns, promotional discounts, and inter-company markups, shrinking the royalty base by 20–40%.
Fix: Define net sales to include gross invoice price minus only: returns actually received, sales taxes, and freight separately invoiced to the customer. Enumerate deductions exhaustively.
Why it matters: A quality control clause referencing an unattached schedule is unenforceable, leaving the licensor unable to prevent substandard products from being sold under its IP.
Fix: Complete and attach Schedule C at signing. Both parties should initial the schedule separately to confirm it was reviewed and agreed.
Why it matters: Without a sell-off period, the licensor can demand immediate cessation of sales at termination, leaving the licensee with unmarketable finished goods and creating grounds for a damages claim.
Fix: Include a 90–180-day post-termination sell-off period allowing the licensee to deplete finished goods already manufactured before the termination date, subject to continued royalty payments on those sales.
Why it matters: Patent landscapes are contested and change constantly — a patent the licensor believes is valid may later be challenged or found to overlap another's rights. An absolute non-infringement warranty exposes the licensor to unlimited indemnification liability.
Fix: Limit the warranty to the licensor's actual knowledge: 'Licensor is not aware, as of the Effective Date, of any third-party claim that the Licensed IP infringes any third party's intellectual property rights.'
Why it matters: Without an explicit prohibition, the licensee may sublicense the manufacturing rights to lower-cost third-party manufacturers without the licensor's knowledge or consent, undermining quality control and royalty collection.
Fix: Include a clause stating that the licensee may not sublicense, transfer, or assign any rights under the agreement without prior written consent from the licensor.
In plain language: States that the licensor grants the licensee a non-exclusive right to manufacture the licensed products using the defined IP, and explicitly preserves the licensor's right to grant identical licenses to others.
[LICENSOR NAME] hereby grants to [LICENSEE NAME] a non-exclusive, non-transferable license under the Licensed IP to manufacture, have manufactured, and sell the Licensed Products within the Territory, solely within the Field of Use defined in Schedule A. Licensor retains the right to grant licenses of the same scope to any third party.
Common mistake: Failing to include the phrase 'non-exclusive' explicitly in the grant clause. Omitting it creates ambiguity that courts may resolve in favor of implied exclusivity, preventing the licensor from signing additional licensees.
In plain language: Identifies with precision the patents, trade secrets, technical drawings, or proprietary processes being licensed, typically by reference to a schedule listing patent numbers and filing jurisdictions.
The 'Licensed IP' means the patents, patent applications, and technical know-how listed in Schedule B, including U.S. Patent No. [PATENT NUMBER] and any continuations, divisionals, or foreign counterparts thereof.
Common mistake: Using a vague catch-all like 'all technology related to the product' without listing specific patent numbers or a defined know-how package. Vague definitions invite disputes about what is actually covered and can inadvertently transfer rights the licensor did not intend to grant.
In plain language: Defines the geographic boundaries within which manufacture and sale are permitted, and the specific product category or application for which the licensed IP may be used.
The Territory is limited to [COUNTRIES / REGIONS]. The Field of Use is restricted to the manufacture of [PRODUCT DESCRIPTION] for use in [APPLICATION / INDUSTRY]. Any manufacture or sale outside the Territory or Field of Use requires a separate written amendment.
Common mistake: Leaving the territory as 'worldwide' when royalty rates were negotiated for a specific market. A worldwide non-exclusive grant at domestic royalty rates significantly undervalues the IP for international markets.
In plain language: Sets the royalty rate (percentage of net sales or per-unit fee), the reporting period, the format of royalty statements, and the payment deadline.
Licensee shall pay Licensor a royalty of [X]% of Net Sales of Licensed Products, payable quarterly within 30 days of each quarter end, accompanied by a written royalty statement showing units manufactured, units sold, gross revenue, deductions, and Net Sales. Minimum annual royalties of $[AMOUNT] apply regardless of sales volume.
Common mistake: Defining 'net sales' without specifying which deductions are permitted (returns, freight, taxes, etc.). Without a clear definition, licensees apply generous deductions that erode the royalty base, sometimes by 20–40% below what the licensor anticipated.
In plain language: Requires the licensee to manufacture licensed products to specified quality standards and gives the licensor the right to inspect facilities and samples to verify compliance.
Licensee shall manufacture Licensed Products in accordance with the Quality Standards set out in Schedule C. Licensor may, upon [10] business days' notice, inspect Licensee's manufacturing facilities and request product samples for testing. Licensee shall promptly remedy any non-conformance identified by Licensor.
Common mistake: Including quality standards by reference to a schedule that is never attached. If no standards schedule is executed, the clause is unenforceable and the licensor loses the ability to protect its IP's reputation in the market.
In plain language: Grants the licensor the right to audit the licensee's books and production records to verify royalty calculations, typically limited in frequency and triggered by a discrepancy threshold.
Licensor may, no more than once per calendar year upon [15] business days' written notice, audit Licensee's books and records relating to Licensed Products. If an audit reveals an underpayment exceeding [5]%, Licensee shall reimburse Licensor's audit costs in addition to the shortfall and interest at [PRIME RATE + 2%] per annum.
Common mistake: Omitting the cost-reimbursement trigger for underpayments. Without it, licensees who underreport have no financial incentive to correct, since the licensor bears the audit cost regardless of the outcome.
In plain language: Prohibits the licensee from disclosing the licensed know-how, technical specifications, and trade secrets to third parties, and survives termination of the agreement.
Licensee shall hold all Licensed IP and technical know-how disclosed by Licensor in strict confidence, shall not disclose such information to any third party without Licensor's prior written consent, and shall limit access to employees who have a need to know. This obligation survives termination of this Agreement for a period of [5] years.
Common mistake: Not specifying a post-termination survival period for confidentiality. Without it, the obligation may be interpreted to end when the agreement ends, leaving trade secrets unprotected after the relationship closes.
In plain language: Sets out what the licensor warrants about the licensed IP (typically ownership and no known conflicting licenses) and allocates responsibility for third-party infringement claims between the parties.
Licensor warrants that it has the right to grant this license and is not aware of any third-party claims that would materially impair Licensee's rights hereunder. Licensor shall indemnify Licensee against third-party claims that the Licensed IP infringes a third party's rights, provided Licensee promptly notifies Licensor and cooperates in the defense.
Common mistake: Licensor providing a warranty that the IP does not infringe any third-party rights — an absolute warranty no licensor should give. IP landscapes are complex; the appropriate warranty is limited to the licensor's actual knowledge at the time of signing.
In plain language: States the initial license term, renewal conditions, events that allow either party to terminate early (breach, insolvency, non-payment), notice requirements, and post-termination obligations.
This Agreement commences on [START DATE] and continues for [X] years, unless earlier terminated. Either party may terminate upon [30] days' written notice if the other party materially breaches and fails to cure within [30] days. Termination does not relieve Licensee of royalty obligations accrued prior to the termination date.
Common mistake: Failing to specify what happens to finished goods inventory held by the licensee at termination. Without a sell-off period clause, the licensor can demand immediate cessation, leaving the licensee with unsaleable inventory and exposing both parties to a dispute.
In plain language: Specifies which jurisdiction's law governs the agreement and how disputes are resolved — arbitration, mediation, or litigation — including venue and language.
This Agreement is governed by the laws of [STATE / COUNTRY], without regard to conflict-of-laws principles. Any dispute shall be resolved by binding arbitration under [AAA / ICC] rules in [CITY], conducted in English. Either party may seek injunctive relief in any court of competent jurisdiction to protect its IP rights.
Common mistake: Choosing governing law in a jurisdiction with no connection to either party's operations. Courts in the licensee's jurisdiction may decline to enforce a foreign governing-law clause, particularly in EU member states where local IP and competition law is mandatory.
List every patent number, patent application, and item of technical know-how being licensed in Schedule B. Include filing countries, application numbers, and grant dates where available.
💡 Search the USPTO and EPO patent databases to confirm all listed patents are active and assigned to the licensor before signing — a lapsed or unassigned patent cannot be effectively licensed.
State the geographic territory as specific countries or regions, not vague terms like 'worldwide.' Define the field of use by product category, industry vertical, or end application so both parties know exactly what is and is not covered.
💡 Narrow fields of use allow the licensor to sign additional licensees for adjacent applications, maximizing royalty income without conflicting with existing grants.
Choose either a percentage-of-net-sales royalty or a per-unit fee, then write out the exact definition of net sales, listing every permitted deduction (e.g., returns, freight, taxes). Set a minimum annual royalty and attach the payment schedule.
💡 Industry royalty rates for manufactured goods typically run 3–8% of net sales for patents on components and 5–15% for patented end products — research comparable license agreements in your sector before fixing a rate.
Complete Schedule C with specific manufacturing tolerances, materials specifications, testing protocols, and any certifications (e.g., ISO 9001, CE marking) required. Both parties must initial the schedule at signing.
💡 If quality standards will evolve over time, include a clause allowing Licensor to update the schedule with [60] days' notice rather than requiring a contract amendment each time.
Set the audit frequency (typically once per year), notice period (10–15 business days), and the underpayment threshold that triggers cost reimbursement by the licensee (typically 5% of royalties due in the audited period).
💡 Request that the licensee maintain production and sales records for at least 3 years after the end of each royalty period — this aligns with most statute-of-limitations periods for contract claims.
Decide whether improvements to the licensed technology made by the licensee during the term are assigned back to the licensor, remain with the licensee, or are jointly owned. Record the agreed position in a dedicated clause or schedule.
💡 A 'grant-back' clause requiring the licensee to license improvements back to the licensor non-exclusively at no cost is common and generally enforceable, but exclusive grant-backs may raise competition law concerns in the EU.
State the initial term, any automatic renewal conditions, and the notice period required for non-renewal. Include a 90–180-day post-termination sell-off period allowing the licensee to deplete finished goods inventory.
💡 For capital-intensive manufacturing, consider a minimum term of 3–5 years to give the licensee adequate time to recover tooling and setup costs — short terms discourage investment in the licensed technology.
Both parties must sign and date the agreement before the licensee begins any production run using the licensed IP. Have each party initial every schedule and amendment page.
💡 Use a dated electronic signature platform to create a timestamped execution record — critical if a royalty underpayment or infringement dispute arises years later.
A non-exclusive license to manufacture is a contract in which an IP owner grants a manufacturer the right to produce goods using the owner's patents, trade secrets, or proprietary processes, while retaining the right to grant identical rights to other manufacturers. Unlike an exclusive license, it does not prevent the licensor from signing additional production agreements with competing manufacturers. It is the standard instrument for IP owners who want to generate royalty income from multiple manufacturers simultaneously.
An exclusive license prevents the licensor from granting the same manufacturing rights to any other party — the licensee is the sole authorized manufacturer. A non-exclusive license allows the licensor to license the same IP to as many manufacturers as it chooses. Exclusive licenses command higher royalty rates and upfront fees because of this restriction; non-exclusive licenses typically carry lower rates but allow the licensor to multiply revenue across several manufacturers.
Royalty rates depend heavily on the industry, the IP's value, and the product's gross margin. For patented components, rates typically run 3–8% of net sales. For patented end products with high margins, rates of 5–15% are common. Know-how licenses without patent protection tend to attract lower rates of 2–5%. The widely referenced Georgia-Pacific factors and comparable license benchmarking (available through licensing databases like ktMINE) are the starting point for rate negotiation.
In the United States, patent licenses do not need to be recorded with the USPTO to be enforceable between the parties, but recording protects the licensee against a subsequent purchaser of the patent who might not have notice of the existing license. In the EU and UK, recording a patent license in the relevant national patent registry is generally advisable to protect the licensee's rights in insolvency scenarios. Trade secret licenses do not require registration in any major jurisdiction.
Only if the agreement explicitly permits it. Absent an express sublicensing right, a licensee generally cannot sublicense its manufacturing rights to another party. Most licensors restrict or prohibit sublicensing to maintain quality control and royalty traceability. If sublicensing is permitted, the licensor typically requires approval rights over each sublicensee and the right to audit sublicensee records directly.
The agreement should address this scenario explicitly. Many manufacturing licenses include a patent challenge clause allowing the licensee to reduce or suspend royalty payments if a licensed patent is declared invalid by a court or patent office. In the US, licensees cannot be prohibited from challenging patent validity under antitrust principles (Lear v. Adkins, 1969). If the patent is ultimately invalidated, royalties accrued before the invalidation date are typically non-refundable under most agreements.
The licensor should include the right to approve product specifications before manufacturing begins, inspect facilities on reasonable notice, request product samples for testing, and require the licensee to remedy non-conformances within a defined cure period. Attach a detailed quality standards schedule as an exhibit — a quality clause without an attached standards schedule is difficult to enforce. Some agreements also require the licensee to maintain ISO certification or pass third-party audits.
The agreement is generally enforceable in jurisdictions where both parties operate, but the governing-law clause and dispute-resolution mechanism are critical. In the EU, local competition law (particularly Article 101 TFEU and the Technology Transfer Block Exemption Regulation) imposes limits on certain license restrictions — field-of-use and territory clauses must comply with these rules. In Canada and the UK, the agreement is generally enforceable under contract law, but local patent and IP legislation may impose additional requirements. Legal review in each relevant jurisdiction is advisable for cross-border licenses.
For straightforward domestic licenses between established parties with clearly identified IP, a high-quality template is a strong starting point. Legal review is strongly recommended when the licensed IP is valuable, when the parties are in different countries, when royalty structures are complex, or when the agreement involves sensitive trade secrets. A qualified IP attorney can typically review and customize this template in 2–4 hours at a cost of $600–$1,500 — a fraction of the potential exposure from an ambiguous grant clause or undefined royalty base.
An exclusive manufacturing license grants the licensee sole production rights, preventing the licensor from authorizing any other manufacturer. It commands higher royalties and upfront fees but limits the licensor's ability to expand revenue. A non-exclusive license suits licensors who want to generate income from multiple manufacturers simultaneously or preserve flexibility to enter new geographic markets independently.
A technology license agreement grants rights to use or commercialize technology in a broad sense — including selling, distributing, or incorporating it into services — without necessarily granting manufacturing rights. A non-exclusive license to manufacture is specific to the right to produce physical goods. If the licensee needs both manufacturing and distribution rights, both documents may be required, or a combined agreement should be drafted.
A patent license agreement focuses specifically on rights under one or more defined patents. A non-exclusive license to manufacture is typically broader, covering patents, know-how, trade secrets, and technical specifications as a bundled package. When the licensor's competitive advantage lies in trade secrets and process know-how rather than patents alone, the manufacturing license is the more complete instrument.
A manufacturing services agreement governs a service relationship in which the manufacturer produces goods to the client's specifications and is compensated with a service fee — no IP is licensed. A non-exclusive license to manufacture transfers IP rights and generates royalty income for the licensor. The distinction matters for accounting, tax treatment of payments, and ownership of improvements developed during production.
Brand owners license patented product designs or formulations to multiple contract manufacturers, with strict quality standards to protect brand reputation and retail placement.
Machinery and component manufacturers license proprietary process patents to OEMs in multiple regions, using field-of-use restrictions to segment markets by application.
Drug patent holders license manufacturing rights to generic producers or CMOs in low-cost jurisdictions, with stringent GMP compliance requirements and regulatory filing obligations built into quality schedules.
Semiconductor and electronics IP owners license manufacturing rights to foundries and ODMs, with improvement assignment clauses and strict confidentiality around process know-how.
Recipe and process IP owners license production rights to co-packers or regional manufacturers, incorporating food safety standards, ingredient sourcing requirements, and labeling compliance into the quality schedule.
Tier-1 suppliers license patented component technology to Tier-2 manufacturers in approved supply chains, with quality standards tied to industry certifications such as IATF 16949 and AS9100.
US patent licenses are governed primarily by contract law and the Patent Act (35 U.S.C.). Recording the license with the USPTO under 35 U.S.C. §261 is not required for enforceability between parties but protects the licensee against a bona fide purchaser of the patent. Under Lear v. Adkins (1969), licensees cannot be contractually barred from challenging patent validity. Non-compete and field-of-use restrictions are generally enforceable but may attract antitrust scrutiny under the Sherman Act if the licensor holds market power.
Canadian patent licenses are governed by the Patent Act and applicable provincial contract law. Recording a license with the Canadian Intellectual Property Office is advisable to protect the licensee's rights in insolvency or patent assignment scenarios. Provincial variations in contract law are minimal for commercial agreements, but Quebec contracts should be reviewed under the Civil Code of Quebec. Competition Bureau guidance should be consulted for field-of-use or territorial restrictions in concentrated markets.
Following Brexit, UK patent licenses are governed by the Patents Act 1977 and UK contract law independently of EU regulations. Recording a license at the UK Intellectual Property Office provides protection against third-party patent purchasers. The Competition and Markets Authority applies principles similar to the EU's Technology Transfer Block Exemption Regulation, but under UK-specific guidelines. Post-Brexit, EU TTBER compliance no longer automatically satisfies UK competition requirements.
EU manufacturing licenses must comply with the Technology Transfer Block Exemption Regulation (TTBER, Commission Regulation 316/2014) and accompanying guidelines. Hard-core restrictions — such as fixing the licensee's selling price or prohibiting passive sales into other EU member states — are prohibited. Field-of-use and territory restrictions are generally permitted for non-exclusive licenses between non-competing parties. GDPR considerations apply if the agreement involves exchange of personal data as part of quality audits or reporting processes.
| Path | Best for | Cost | Time |
|---|---|---|---|
| Use the template | Domestic licenses for clearly defined IP between established parties where royalty stakes are under $50,000 per year | Free | 1–2 hours |
| Template + legal review | Licenses involving trade secrets, cross-border manufacture, or royalties above $50,000 annually | $600–$1,500 for an IP attorney review | 3–5 business days |
| Custom drafted | High-value patent portfolios, pharmaceutical or regulated-industry licenses, multi-jurisdiction manufacturing arrangements, or agreements with complex royalty stacking or grant-back provisions | $3,000–$10,000+ | 2–6 weeks |
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