Trade Marks

5 things to watch out for in IP licences

Licensing is a great way for businesses to maximise the value of their ideas.

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

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

1. Understand the ownership rights and ensure they are fully protected

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

2. Ensure that the scope of the licence agreement covers precisely what you intend

Make sure that the licensed rights are clearly defined in the licensing agreement. Exactly what aspects of the IP are granted for license? For example, the owner of the IP may grant a licence to patent rights to a product technology, but not to any underlying registered designs or trade marks which the licensor may wish to keep for its own use.

Each exclusive IP right can be broken down and licensed according to fields of use, market segments and the territories. For patents, each exclusive right can be drawn from the claims.

3. Set clear boundaries in the licensing agreement

There are several factors to consider here.

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

Secondly, make yourself aware of who has the right to assign, sublicense or terminate the licence. Commonly, the right to terminate the licence remains with the licensor, unless the licensee pays a fee to exit the agreement. This is to ensure that the licensor is protected continues to receive returns on their IP rights.

Furthermore, take into consideration the length of the licence agreement. For patents, as a licensee you may require that the licence lasts 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 licence grants an IP right to only one licensee. This excludes anyone else, including the IP owner, from using or exploiting the IP. More often than not, a licensee will want exclusive rights (at least for a particular territory or market sector) and will be willing to pay more for the privilege. Although a large payment may seem appealing, as the licensor, consider carefully whether granting an exclusive licence will limit your options for entering into other licensing deals which may be more suitable/beneficial.

Alternatively, a non-exclusive licence grants the IP rights to as many licensees as wished; or a “sole” licence allows the licensor to use the IP as well as the licensee, but no other party.

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

Finally, it is important that any licence agreements you are involved with are in line with your commercial aspirations and business goals. Make sure the licence agreement does not restrict your plans for business growth over the licence 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.

Wilson Gunn