Patents, trade marks, trade secrets, designs and copyright are all forms of intellectual property (IP) that can be licensed to third parties. An IP license is a legal agreement that allows a third party the right to use or exploit your IP (or aspects of it), in return for a license fee or other benefit.

Licensing can be a great way for businesses and inventors to maximise the value of their ideas/products, increase revenue, and reduce the risks of entering new markets. However, there are several factors that should be considered before entering into a licensing agreement.

1. Who owns the IP rights and are the rights fully protected?

Before entering into a licensing agreement, it is important to establish who has ownership of the IP rights, including who holds the right to license it. Once this is established, ensure that the IP rights are correctly and fully protected. For example, check that the IP rights are registered and any renewals are up to date, if appropriate.

2. What is the scope of the licensing agreement? Does this cover precisely what you intend?

Ensure you understand exactly what aspects of the IP are covered in the licensing agreement. All IP rights that you intend to license should be clearly defined by the licensing agreement.

The licensed IP rights may be broken down according to the field of use, the market segment or the territory. For example, a licensing agreement may cover selling a product, but not manufacturing it.

For patents or patent applications, the licensed rights may be drawn from the claims.

3. Set clear boundaries in the licensing agreement.

There are several points to consider here.

Firstly, be clear about who will own any IP generated as a result of the licensing partnership, and who will own the rights to any future developments.

Secondly, be aware who has the right to assign, sublicense or terminate the license. Commonly, the right to terminate the license remains with the licensor, unless the licensee pays a fee to exit the agreement. This is to ensure that the licensor is protected and that they continue to receive returns on their IP rights.

Furthermore, take into consideration the length of the licensing agreement. For patents, you may wish the license to last up to the expiration of the patent. Alternatively, you may wish to include an option to exit the agreement in the event that, for example, a new competing product comes onto the market.

Resource: Download our licensing checklist to review typical terms that could be included in your licence. 

4. Think carefully before granting an exclusive license.

An exclusive license grants the IP right to only one licensee. This excludes anyone else, including the owner, the right to use or exploit the IP. More often than not, a licensee will want exclusive rights (at least for a particular territory) and will be willing to pay a larger payment fee for the exclusivity of those rights. Although a large payment fee may seem appealing, consider carefully whether granting an exclusive license will limit your options of entering into other licensing deals which may be more profitable/beneficial.

In comparison, a non-exclusive license grants the IP right to as many licensees as wished.

5. Keep the licensing agreement in line with your commercial aspirations and business goals.

Finally, it is important that a licensing agreement aligns with your commercial aspirations and business goals. Make sure that the licensing agreement does not restrict your plans for business growth over the license period, or that the growth of your business does not devalue your IP.

For further information about licensing, please get in touch to speak to one of our attorneys.