An intellectual property license will authorize you as the intellectual property holder (licensor), to allow another parties (licensees) the right to use your creation for a certain fee. Many businesses offer licensees use of their creation to simply earn additional profit for the business. There are several licensing agreements that one can use, including the following:

  1. Technology License
  2. Trademark License and Franchise
  3. Copyright License

At times, all three licenses can be given in one contract. Regardless of the type of license agreement you use, you as the licensor are essentially allowing the licensee to use your invention in return for payment in a set amount. The agreement should also specify guidelines as to how the invention can be used and to what extent. There is a variety of language that can be used to protect your business as the licensor against potential infringement on the part of the licensee.

What Can a Licensee Do?

Depending on the specific language in the contract, you might allow the licensee to manufacture, sell, import/export, distribute or market a product that you invented. Therefore, you are allowing the licensee full access to your product for a specific period of time and for a specific amount. Other licensing agreements limit what the licensee can do with your product. For example, if you want the licensee to only have an ability to manufacture the product, then the licensee cannot sell or market the product, as that would be infringing upon the licensor’s intellectual property protection over that product. That is why it is important to ensure that all applicable language is identified in the contract itself and that both parties understand what is expected of them.

What About an International Licensing Agreement?

You can have an international licensing agreement only if that intellectual property right is also protected in the other country. If it isn’t, then you cannot legally license it, as you have no protection over your invention in that country. Therefore, the party who wanted to use your product (licensee) can actually use it freely in that country since you have no property rights in the country.

Types of Licenses

There are two main types of licenses that you can obtain for your intellectual property, including the following:

  1. Patent
  2. Trademark

Patent

A patent gives the inventor full rights over his or her invention. This allows the inventor to refuse letting anyone use, sell, or make the invention. Two of the most common types of patent licenses are exclusive and non-exclusive. If you have an exclusive license, this could mean that you have a license to use, make, and sell the invention so long as the licensor is paid royalties on each sale. Another type of exclusive license could be limited to a certain industry or geographical area. A non-exclusive license, however, means that several businesses or people have a license to the creation, even if those licensees compete in the same industry and area.

Trademark

There are two main things to consider for a trademark, including whether the license would be “naked” and whether the trademark license would become a franchise.

A trademark is considered “naked” if the end product being sold by the licensee is wholly different that the actual product with trademark protection. For example, assume that you pay $1,000 to obtain a license to the Coca-Cola trademark with no other implications or limitations. You could then make your own soda and label it as Coca-Cola. Initially, you would sell a lot of product since everyone would assume that your product actually tastes like Coca-Cola. However, consumers would quickly realize that you have an entirely different product. If a trademark is licensed without such quality control over the end product, then the license is referred to as “naked” meaning that the trademark is abandoned.

The 3 elements of a trademark franchise are as follows:

  1. The initial fee must be greater than $500
  2. The license must be for an actual trademark
  3. The licensor must provide assistance or control over what the licensee does

Most importantly here is that the licensor must still have almost total control over what the licensee does, and must continue to oversee the licensee in the same way that an employer oversees what its employees do on a daily basis.

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