Intellectual Property Licensing: Everything You Need to Know
Intellectual property licensing starts when both parties enter a contract which illustrates what the licensor allows a licensee to do with a licensed property.3 min read
2. Licensing Terminology
Intellectual property licensing starts when both parties enter a contract. The agreement illustrates what the licensor (you) allows a licensee (person or company wishing to use the property) to do with a licensed property. When the license contract is settled, actions by a licensee that do not fit within the license would be considered an infringement, and the licensee would be subject to litigation. Overall, it entails a promise not to commence litigation. For instance, a fictitious 007 spy of British descent had a “license to kill.”
Also, it’s a promise from the British government not to commence legal action against 007 for any murders committed in order to save the world from villains. Therefore, a license agreement involves the licensor agreeing not to sue a licensee for using the intellectual property of the licensor. IP rights entail the following:
- Trade secrets
- Proprietary data
- Registered designs
The rights may stem from a company, and owners retain rights throughout the lifetime and as leverage against any competitors. With that, IP owners may wish to transfer all or some of IP, but outright sales would not be the right option in most cases.
For instance, owners may comprise a non-practicing entity (NPE), which means that it covers the following:
- Inventors who may not commercialize an IP for whatever reason
- Universities or research firms that want to move technology in regard to a mission
- Commercial bodies with changing business plans and end up with a surplus IP
- “Trolls” who amass patents or IPs by acting as middlemen and want to license rights to interested parties
Even when an owner practices an IP, you have various advantages in sharing IPs with others. For instance, you can share an IP as part of a litigation settlement, or a cross-licensing scheme that may solve disputes where parties may be blocking an IP mutually. Licensing itself, instead of completing a transfer or the assignment of an IP, affords owners with various advantages.
By keeping ownership, sellers retain the title and usually have an easy time retracting the rights transfer if a buyer does not fulfil the agreement. In many cases, a party wishing to obtain the rights does not have sufficient financial resources to pay the full value, or may perceive the IP as highly uncertain or speculative, but may be willing to pay more if such technology could be commercialized.
A well-crafted license contract should not only give a licensor a chance to terminate the agreement if payments do not get made, but also gives parties the right to “share in the upside.” License agreements may also distinguish the duties of all parties in enforcing or maintaining patent rights.
Therefore, licensing gives additional flexibility and lowers the chance that an IP gets under or overvalued.
To know your full rights and essential components within a licensing property contract, be aware of the following terms:
- License Components: A usual patent license determines any rights that are granted, the grant term, considerations in return for grants, reporting and records, warranties and representations for patents, potential infringement, tort liability regarding services or products covered under the license, among other attributes.
- Grant Clause: A grant clause establishes which rights are bestowed. A grant may also be exclusive in nature, meaning that only a particular licensee can exploit the rights, or non-exclusive, where a licensor may grant the same rights to multiple parties. A grant may also be restricted by geography. For instance, grants may apply only in the United States or around the world. Moreover, the type of field may apply. For instance, the agreement may restrict rights to smartphones and not computers.
- Consideration: Payment consideration can apply in various ways. The agreement usually mandates a licensee to pay a fee upfront, including ongoing royalties based on agreed sales percentages or per-unit basis. A license may also mandate a minimum annual royalty, or a minimal product annual sales to ensure the licensee sufficiently markets the services and/or products covered in a patent.
Moreover, a license contract can require that a licensee send reports to a licensor. For instance, revenue or sales to make certain that royalty payments remain accurate. Milestone payments are useful in dealing with the speculative situation of IP rights, and to ensure that a licensor gets the property share of the commercialization.
If you have more questions on intellectual property licensing, submit your legal inquiry to our UpCounsel marketplace. UpCounsel’s attorneys will give you more information on how to adequately license a product or service, and they will ensure that a licensee lives up to the agreement. Moreover, they will enlighten licensees on their rights as well.