IP Licensing Agreements

Licence agreements are used in merchandising or software licences. But these are just a couple of typical examples.

A licence agreement is a contract under which the holder of intellectual property (licensor) grants permission for the use of its intellectual property to another person (licensee), within the limits set by the provisions of the contract.

Without such an agreement, the use of the intellectual property without the prior consent of the originator of the content would be an infringement.

Advantages of licensing your IP

Licensing, as opposed to complete transfer or assignment of IP, provides the owner with several advantages.

By retaining ownership, the seller (licensor) retains title and typically has an easier time reversing the transfer of rights if the buyer (licensee) doesn’t live up to their end of the bargain.

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In many instances, the party seeking to acquire the IP rights does not have sufficient financial resources to pay the full value up-front – or may perceive the IP as highly speculative but be willing to pay more if the technology can be successfully commercialised.
A well-drafted license agreement therefore not only gives the licensor an opportunity to more readily terminate the agreement if future payments are not made, but also allows the parties to “share in the upside.”
License agreements can also delineate the responsibilities of each party for maintaining or enforcing the patent rights.

Overall, licensing allows greater flexibility. And the risk of over or undervalued IP will be reduced. If the desired revenue strategy is a stream of income, then licensing is often the most appropriate choice. That is royalties or contingent payments.

It might be advantageous for a business to have a holding company which holds all the intellectual property and other assets in a business. That is to licence that IP to a trading company which is the entity exposed to litigation or risk. The assets of the business are more protected in the event that the trading entity is exposed or is liquidated, administrator appointed or wound up. That’s because they are situated in a different legal entity to the trading company. Many businesses with a large amount of intellectual property use this legal strategy. It’s a way of reducing the risk of the overall business.

When is granting or taking a licence not appropriate?

If you have the ability to commercialise your own IP, you might be better off doing it yourself
you should be wary of licensing your IP to companies who might lessen the value of the IP.

For example,

If you are licensing a trade mark you will want to consider whether the quality of your brand will be affected by the goods it is applied to.
If you are looking at buying rights to IP, the prospective licensor may want to charge royalties that are too high and may restrict the growth of your business.
The IP to be licensed may be too weak – if a competitor could work round it and take away market share, it may not be worth you investing in a licence.

Things to consider when looking into licensing agreements

What is the precise licenced IP? E.g. is it the logo? A design?
Is the IP capable of registration? If so, it’s best to get that in order before licensing it out.
Will any exclusivity be attached to the licence?
How long will the licence run for?
What will the financial arrangements be? One off fee or ongoing? Will the licensee have to meet any sales or other targets?
What will happen on termination of the licence?
Are there any limitations you wish to place on the licence?
Are there any confidentiality considerations?
What about liability and/or indemnity provisions?

IP Licensing Agreements