Legal Definitions - use-based license

A use-based license is a type of legal agreement that grants permission to use a product, service, or intellectual property, where the fees or the scope of permitted use are directly determined by specific metrics related to how or how much the licensee actually uses it. Instead of a fixed fee for unlimited access, the cost or the extent of rights granted fluctuates based on measurable usage.

This licensing model ensures that the cost aligns with the value derived from the usage, often making it more flexible for users whose needs vary over time.

• Example 1: Cloud Storage Service

  Imagine a small business that stores its data on a cloud computing platform. Their agreement with the cloud provider is a use-based license. They are charged a certain amount per gigabyte of data stored each month, plus additional fees for every gigabyte of data transferred out of the cloud (egress fees) and for the amount of processing power their applications consume. If their data storage needs increase, or they transfer more data, their monthly bill goes up accordingly.

  How it illustrates the term: The business's payment is directly tied to their actual consumption of storage space, data transfer, and computing resources, rather than a flat monthly fee for unlimited access. The more they "use" the service, the more they pay.

• Example 2: Software API for Transaction Processing

  A financial technology startup develops an application that needs to process credit card payments. They integrate a third-party payment gateway's Application Programming Interface (API) into their software. The payment gateway charges the startup a small fee for each successful transaction processed through its API. If the startup's application processes 1,000 transactions in a month, they pay for 1,000 transactions; if it processes 10,000, their cost increases tenfold.

  How it illustrates the term: The license to use the payment gateway's technology is "use-based" because the fee is directly proportional to the number of transactions processed, which is a specific metric of usage.

• Example 3: Patent License for Manufacturing

  A company holds a patent for a unique, energy-efficient motor design. They license this patent to an appliance manufacturer. The licensing agreement stipulates that the manufacturer will pay a royalty of $5 for every motor they produce using the patented design. If the manufacturer produces 10,000 motors in a quarter, they owe $50,000 in royalties; if they produce 20,000 motors, the royalty payment doubles.

  How it illustrates the term: The right to use the patented technology is granted, but the payment for that right is directly linked to the volume of products manufactured, which is a clear measure of how much the licensee "uses" the patented invention.