Intellectual Property Licensing and Assignments
Intellectual property (IP) owners have the exclusive right to exploit and sell their works. However, they may prefer to give someone else all or some of those rights. An IP licensing agreement allows an IP owner (the licensor) to lend or temporarily grant certain IP rights to another party (the licensee) in exchange for money. Owners can also assign or sell their intellectual property rights to another party, giving up their rights completely. In either case, an experienced attorney should be consulted to negotiate and draft the terms of the license or assignment to help ensure an advantageous arrangement.
What Types of IP Licenses Exist?
An IP license can enable a licensor to monetize and exploit their intellectual property more effectively by utilizing third parties. However, the best type of license to use depends on the nature of the IP and the owner’s goals. There are several types of licenses:
- The licensee is granted the sole right to use the specified IP rights as provided in the contract, so neither the licensor nor other parties can use them.
- Non-Exclusive. The licensor grants the licensee certain rights but can also continue to use the IP itself or license it to other parties.
- Sole. Only the licensor and licensee have the right to use the IP.
- Limited. The licensee is granted either exclusive or non-exclusive rights, but they are subject to certain limitations such as a specific timeframe, geographic area or other restriction.
What Are Common Provisions in a License?
The licensing agreement dictates what rights the licensor is granting to the licensee and under what terms. The contract will also set forth each party’s rights and responsibilities. Common licensing provisions include:
- The agreement should state whether it is exclusive, meaning that the licensor cannot grant a similar license to another party during the term of the agreement.
- Term and termination. The agreement may be for a specified period or perpetual. Rights to terminate the agreement should also be set forth in the contract, including the grounds and conditions which must be met.
- Licensors may want to restrict the geographical location where the licensee may exploit the IP. For example, the licensee may only be granted rights in certain countries.
- Royalties and Fees. Typically, licensing agreements provide for a flat fee, an ongoing royalty, a percentage of profits or a combination of all three. Where payments are based on sales or profits, there should be a means for auditing figures.
- Licensee Obligations. The agreement should set forth any obligations of the licensee, such as achieving specified sales or revenue targets, providing reports or other duties.
- Maintenance/Improvements. The licensee may be obligated to take steps to protect and maintain the IP. Where the licensee makes improvements to a licensed product, the contract should specify who owns the improvements.
- Sublicenses/Assignability/Transferability. Whether or when the licensee has the right to sublicense, assign or transfer their rights to the IP to third parties should be clearly stated.
- Confidential information exchanged by the parties should be protected.
- Representations, Warranties and Indemnification. Licensees should require licensors to represent and warrant that they are the sole owner of the work or they have the unrestricted right to convey the license granted. Further, the licensor should indemnify the licensee for any breach of the representations and warranties.
How Is an Assignment Different than a License?
An assignment of IP rights is an outright sale of those rights. The owner relinquishes his or her rights to the IP and permanently transfers them to another party for money. Not all the owner’s rights in the IP must be assigned, but those that are assigned are no longer controlled by the owner. This is different than a license agreement, where the licensor still retains ownership of the IP licensed but permits another party to temporarily obtain the rights to use the IP.
A licensing agreement is more beneficial where the licensor wants to maintain control over the IP, including the right to end an agreement with a licensee, negotiate better terms in the future or license to multiple parties. Assignment is typically used when the owner does not have the ability or desire to exploit the rights or in connection with the sale of a business.
IP licenses and assignments are potentially very lucrative transactions for both parties. However, these agreements can be complex. An attorney should always be consulted to advise regarding the best type of arrangement as well what terms are needed to protect the party’s rights and maximize the revenue potential.
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