These days, it is hard to peruse the web, newspapers or business journals without reading about intellectual property (IP) in some form or other. IP rights are very much part of our global and structural reality; it is well known that 75% of most company’s value reside in its intangible assets. Thus an example of careless management is inadequate handling of IP.
Knowing what to do or what you intend to do with your IP before seeking to protect it is a critical part of managing your IP as it determines your management model. As an IP owner, there are many things you can do to extract commercial value from your intellectual asset. These include selling it directly for a fixed price or donating it to other organisations, licensing it or utilising it to exercise market power or to facilitate collaboration. However, in this article, I am only going to focus solely on licensing and the options available to you as a potential licensor (IP owner).
Licensing is the most common method to acquire the right to exploit IP. Most IP owners are reluctant to transfer ownership of their rights outright except through an upfront payment reflecting the value of the rights.
Types of Licence
This is a type of licence agreement where the licensee (person licensing in) expects to have the absolute right to use, manufacture and sell as well as distribute product, technology, content or other licenced assets in a given territory in exclusion of all, including the licensor. An exclusive licence will have to be stipulated in the terms and condition of the agreement and being able to define what that exclusivity is in a broader sense is crucial for a successful negotiation.
Exclusive licences can also be seen as an intellectual property transfer (assignment) in situations where there is no termination date. It must be noted that an IP licence and an assignment have different functions e.g. if there is an infringement, only the assignee can sue. A licensee in this situation will have to work with the licensor to determine the damages and if any remedy will be awarded to the licensee.
This type of licence agreement grants the right to license the IP according to the conditions stipulated in the terms and conditions. The clauses will usually state that the licensor may continue to use the IP as well as grant others the right to use the IP. The law does not say exclusively what the agreement should be between the licensor and the licensee. Therefore, the parties must agree on these terms. If the IP in question is protected by copyright, a non-exclusive copyright licence will avail the copyright owner of the right to grant as many persons as he deems appropriate the use of such right.
A sole licence is an intermediate licence that shares characteristics of both an exclusive and a non-exclusive license. When granting a sole licence, the licensor typically desires to retain the right to use the IP. Therefore, a sole licensee is not in the same position as an exclusive licensee but is in a better position than a non-exclusive licensee who is typically faced with the prospect of a multitude licensee.
Sole licenses are often used in the circumstance where the licensee’s ability is unclear and where the licensor desires the right to use the IP where the licensee has failed in its obligation.
Keep an open mind!
IP property licensing is conceptually a simple process. One party has an IP right that can be used by others in return for payment. Each licensing deal depends on prevailing circumstances and the result of a strategic negotiation. There are also other types of licensing deals that are not mentioned above; these are transferable and non-transferable licences, single, multiple and master licences. In general, all the aforementioned can be referred to as an open licence where-by the parties would need to negotiate whether a licence will be transferrable or not, single or multiple. Master licences are also subject to agreement between parties but depend on the business models of the licensor.
Structuring the licencing deal – the important bits
Even if the deal was completed on a tissue paper, some licensing essential terms need to be covered before the handshake happens. This may be elaborated and legally defined in a watertight licence agreement later on. These important bits are where negotiations get most tense unless one party clearly can impose terms on the other. The first negotiation meeting for a potential licence agreement must include but not limited to following terms:
● The specific commercial activities being licenced
● Royalty payment for the use of intellectual property right
● Whether the deal will be exclusive or non-exclusive
● Who is responsible for defending infringement of the licensed IP rights
● To what extent warranties and indemnities will be given so that use of rights will not infringe the intellectual property right of someone else.
Any type transaction involving IP requires a broad range of legal, financial and technical expertise, all of which will allow you to create profitability, minimise risk and generate long-term business growth.