Intellectual Property Rights reference an extensive range of privileges afforded to the owners of creative material, including rights in connection with trademarks, copyrights and patents, among other things. Owners of intellectual property (IP) have the exclusive right to exploit and sell their creative material. Whether it’s a song, film, logo, artwork or invention, IP owners are the ones who dictate how and when their work can be used.
Licensing is one way for owners of creative property to monetize and publicize their work, without completely transferring rights or ownership. An IP licensing agreement allows an IP owner (or the Licensor) to profit by lending certain usage rights to another (the Licensee).
BUT WAIT! Before jumping into that intellectual property licensing agreement, really think about the nuts and bolts of its terms.
Owners of IP dictate which rights are granted to their Licensees, and how, when and where those rights can be used. Owners may want to restrict the way the work can be used, the geographical location (worldwide v. specific region), as well as the length of time that the Licensee has such rights. For example, the owner of a song may limit a Licensee to use the material only in connection with one film, in the United States for two years. Granting and limiting rights is an important way for Licensors to control the way their IP is used, while still benefiting from the revenue that comes with an intellectual property license agreement.
What’s your consideration?
The payment exchanged for an intellectual property license can be structured in many different ways. Typically, licensing agreements provide for a flat fee, an ongoing royalty, a percentage of profits, or a combination of all three. Keep in mind that when dealing with percentage profits or fees accrued from sales, it’s important to establish a record-keeping mechanism and a means for verification, to ensure that payment provided by the Licensee is timely and correct. Otherwise you may find yourself without the cash you contracted for in the first place.
Those tricky little representations and warranties
Before entering into a deal, it’s prudent for both sides to exercise due diligence and verify that the information provided by each party is accurate and acceptable. That’s why Licensees generally require that the IP owner represent and warrant that the Licensor is either the (i) sole owner of the work, or (ii) has the unrestricted right to convey the license granted. Usually, Licensors also confirm in writing that the creative material does not infringe any third-party rights. Licensees will generally seek an indemnification for any breach of the representations and warranties, so it’s crucial to make sure they truthfully reflect the owner’s relationship to, and knowledge of, the material.
Like any written agreement, the contract may dictate certain restrictions or prohibitions for both parties. The agreement may provide restrictions on the Licensor, like dictating the license be exclusive (meaning that the Licensor is restricted from granting a similar license to another party during the term of the agreement).
Owners of IP should be very clear regarding the restrictions to be placed on Licensees. For example, some intellectual property license agreements allow Licensees to independently grant sublicenses to third parties. To retain control over the material, and the parties involved its dissemination, owners may want to prohibit sublicensing or require the licensee to obtain written permission before doing so.
Whether you’re an artist looking to profit from your music, or a successful business authorizing the use of an invention, understanding the terms of your licensing agreements may be important for the protection and control of your intellectual property.