Licensing Intellectual Property 101:
What Every Entrepreneur and Business Owner Should Know

Licensing intellectual property increases a company’s ability to grow its business, launch new products and services, and expand into a wider range of geographic markets. Companies are willing to pay substantial sums of money to use another company’s intellectual property in their own products and services. Licensing can therefore serve as an additional source of revenue for many companies.

Patents, trademarks, and copyrights are all forms of intellectual property that can be licensed. For example, patent licenses can be used for mechanical devices and systems, healthcare products and services, electronic hardware, computer software, chemical compositions, and business methods. Trademark and servicemark licenses can be used in merchandising various products and services that a company offers. Many of these licenses also incorporate rights of publicity. Copyright licenses can be used for artwork, books, music, photography, games, and software, among other matters. In the following sections, we will go through how to recognize and create an intellectual property license that your clients will ultimately thank you for.

Recognizing The Intellectual Property License

If a company is thinking of licensing its intellectual property, there are many considerations to keep in mind. First and foremost, a license is a contract. It is an agreement between the licensor (the person or company owning the intellectual property) and the licensee (the person or company wanting to use the intellectual property). The agreement outlines the appropriate actions each party is supposed to take with respect to the intellectual property and further summarizes what kind of legal action might be taken in the event that the licensee infringes on the licensor’s intellectual property. The license agreement is written in such a manner that an objective third party would be able to reasonably interpret and recognize the respective rights and obligations of the parties to the agreement.

Creating The Intellectual Property License

Prior to engaging in an intellectual property license with a potential licensee, a licensor must conduct due diligence to ensure that he is the true and sole owner of the intellectual property. Assistance from experienced counsel comes in particularly helpful here. Counsel can uncover, for example, whether there is another party which already or jointly owns the intellectual property and/or whether the proposed licensor has the applicable permissions to sublicense.

License agreements should be in written form, signed by both the licensor and the licensee. To create an intellectual property license, both parties must be open to negotiation, because it is unlikely that both parties will immediately see eye to eye on all aspects of the agreement. Keep in mind that the goal in entering a license agreement is for both parties to succeed and to continue to thrive in their respective business ventures, not for the parties to later sue each other, battling it out in court. The following are ten (10) top considerations licensors must bear in mind when proceeding through the negotiation phase:

1. Costs (ex. Lump sum fee vs. recurring fees vs. royalties)
2. Term (ex. Indefinitely vs. annually)
3. Territory (ex. International vs. national vs. regional)
4. Type (ex. Exclusive vs. non-exclusive)
5. Rights (ex. Reproduction, distribution, adaptations)
6. Assignment of rights
7. Infringement
8. Indemnification
9. Governing laws
10. Dispute resolution

This is not an all-inclusive list of provisions and each of the above are modifiable in their own rights. The licensing of intellectual property is a delicate process and must be treated as such. Because license agreements are usually long-term business partnerships, the licensor and licensee should also consider whether it is appropriate to enter into a non-disclosure agreement to protect and not misuse information it considers valuable, confidential, and not of the public domain.

Creating a respectable license agreement sets the initial boundaries for both the licensor and the licensee. Ultimately, licensors are responsible for enforcing their own license agreements and must pay attention to the licensee’s use (and a third party’s use) of intellectual property so as to not wreak havoc in the future. It cannot be overstated that license agreements are long-term relationships, so both sides must be flexible and understanding through the negotiation process in order to get a fair deal. Working with an intellectual property professional to review the license agreement and thoroughly spell out which party is responsible for what will diminish the potential for a lawsuit and burned bridges.