An IP licensing agreement is a partnership between an intellectual property rights owner and another party who is authorized to use those rights in exchange for an agreed upon payment.

What Is a License?

A license is an agreement to not sue the other party. For example, in the Hollywood movie "007," British spy James Bond was given a "license to kill." In effect, the British government promised not to prosecute him for any murders he may commit in the process of saving the world.

A license fundamentally requires the licensor to provide assurance that they will not sue the licensee. In return for the assurance, the licensor usually receives a royalty payment, and the licensee is allowed some sort of intellectual property (IP).

What Is an IP Licensing Agreement?

Intellectual property licensing agreements materialize from the need of one party (the licensee) to use the IP of another party (the licensor). In exchange for the IP, the licensee will pay the licensor a fee or a royalty. The parties involved in the agreement will usually be able to negotiate the conditions and terms of use.

The licensor is the owner/holder of the licensed IP. One license may cover:

  • Design and patent rights
  • Trademark(s)
  • Know-how

The licensor may be allowed to monitor the actions of the licensee while they use their IP. Monitoring a client's actions may help to continually build the overall knowledge of the IP.

Purchasing an IP license has many benefits, including:

  • Increasing the capability of getting services or products faster to market
  • Allowing shared risk
  • Increasing revenue
  • Increasing market penetration
  • Reducing costs and time
  • Accessing specialized knowledge or expertise
  • Providing a competitive advantage
  • Opportunities to collaborate
  • Minimizing capital investment

A vast array of IP licenses are available. The following are the three main groups:

  1. Technology
  2. Trademark and franchising
  3. Copyright

Generally, in these types of agreements, more than one type of IP is transferred between parties. Therefore, one single contract may contain the transfer of many different rights of use. Licensing agreements may also be used during mergers and acquisitions, or during the negotiation of a joint venture.

What Can Be Subject to an IP Licensing Agreement?

Intellectual property that may qualify to be licensed includes:

The ABCs of Licensing Intellectual Property: Introduction

At a bare minimum, the various types of IP rights include:

  • Trade secrets
  • Patents
  • Know-how
  • Registered designs
  • Proprietary data
  • Trademarks
  • Copyrights

Intellectual property rights usually originate with the owner or creator of the technology. Most of the time, the owner will keep the rights of the IP as a competitive advantage against their competitors. Occasionally, the owner or creator will want to sell a part or all of the IP outright, but they may have put themselves in a peculiar situation.

For example, if the owner or creator is part of a non-practicing entity (NPE), a term that is made up of:

  • Any inventor who's not able to market their IP
  • Research institutions or universities that plan on transferring their knowledge
  • Businesses who accidentally find themselves with too much IP
  • Middle-men who accumulate IP with the intention of selling it at a later date

There are occasions when it makes sense to share IP, such as during a litigation, a settlement, or to resolve a stalemate during a negotiation process.

Licensing provides the licensor with a number of advantages including:

  • Retaining title or ownership over the IP
  • Reversing the transfer of IP if the licensee doesn't live up to their end of the bargain
  • Bringing in a steady stream of income
  • Creating a partnership where both parties share in the upside
  • Controlling how the IP can be used
  • Increasing flexibility while also reducing risk that IP will be undervalued

The ABCs of Licensing Intellectual Property: What Are the Components of a License?

The components of a license include:

  • Specification regarding all rights granted
  • Terms of the license
  • Financial consideration exchanged
  • Reporting and records
  • Warranties and representations
  • Infringement process
  • Liability disclosure

The ABCs of Licensing Intellectual Property: Grant Clause

The grant clause explicitly states which patent rights will be granted to the licensor. The rights granted to the licensee can be exclusive or non-exclusive, or limited by a geographic area. The licensor needs to make sure not to grant "all right, title and interest in and to the intellectual property" to the licensee. Such a clause would constitute an "assignment" of the intellectual property, possibly making the licensee the new owner of the IP.

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