Licensing Intellectual Property

Intellectual property can be exploited in several ways. For example, you can either assign (sale of IP) or licence the intellectual property right to a third party. How you chose to exploit your intellectual property will depend on a number of factors including your business model, the resources available to you, the nature and lifecycle of the product and the manufacturing costs and complexity.

A licence is in essence a legal permission granted by the rights owner allowing a third party to exploit the intellectual property right on certain contractual terms. A suitably drafted licence agreement is therefore essential to (i) define how a third party may use your right and for what purpose; (ii) ensure a third party uses the right “properly” so as not to dilute, tarnish or prejudice the right in any way; (iii) ensure you do not fall foul of EC competition law and (vi) ensure you receive payment (licence fee/royalties).

The advantages of licensing are that you retain ownership and control over the use of the intellectual property right and that you can maximise your commercial returns by obtaining a continuous royalty stream. However, the disadvantages are that you still have to maintain, police and enforce your intellectual property right.

In general, a licence can be granted either on an “exclusive” basis or a “non-exclusive” basis. If you grant an exclusive licence to a third party, this means that only that third party will, for the duration of the licence have the right to use the intellectual property right in accordance with the contractual terms agreed. For this very reason, you should expect to be paid a much higher royalties for an exclusive as opposed to a non-exclusive licence.

On the other hand, if you grant a non-exclusive licence, this means that you can continue to enter into additional non-exclusive licences with other third parties.

Before entering into licence negotiations you should consider:

• whether you want to enter into an exclusive or non-exclusive licence;
• price and payment structure;
• what geographic area you want the licence to cover;
• how long you want the licence to last;
• whether the licensee can grant sub-licences;
• how to deal with the ownership and availability of ‘improvements’ (relevant to patent licences);
• how much technical assistance should be provided by the licensee to the licensor and how much it will cost;
• the marketing obligations on the licensee and the marketing support from the licensor; and
• what warranties and indemnities you are prepared to give (if any) in relation to your intellectual property rights.