Paid-Up License

Means a license under which all royalties have been paid in advance, i.e., there are no running royalties; alternately, a paid-up (or pre-paid) license can be for a certain fixed number of units or period of time, usually at a substantial discount to the usual running royalty. Partially paid-up licenses have the advantage to the licensor of placing pressure on the licensee to rapidly exploit the technology, since non-use would mean writing off the sum used to acquire the paid-up component. The disadvantage for the licensee is that money-certain is traded off against uncertain, i.e., the more paid up a license is, the lower the running royalty.

A paid up license is typically irrevocable, i.e., the licensor’s remedy lies in damages and not in cancellation of the license. For a licensee, one additional accounting value of a paid up license over running royalties is that it typically be treated as an asset on the balance sheet, whereas running royalties must be expensed. See Certainty/Uncertainty Trade Off.