Using Licensing Agreements to Protect Your IP
An important tool for monetizing your IP is a licensing agreement. When exploring entering into a licensing agreement, it is important to understand how licensing agreements work and the common terms of a licensing agreement. Today’s post highlights what licensing agreements are and some of the common terms included in every licensing agreement.
How do Licensing Agreements work?
A license gives a person or company the ability to use another person or company’s intellectual property rights for commercial purposes. The licensing agreement lays out the terms and conditions under which the licensee (the one receiving the right to use the IP) can use the IP for its benefit. The agreement also lays out the compensation the licensee agrees to pay to the licensor (the one granting the license), as well as the restrictions on the licensee’s use of the IP. Licensing agreements are often hotly negotiated because of the significant value associated with particular IP. Here are some of the types of rights and other considerations common with licensing agreements:
Types of IP Rights
As we’ve explored in previous posts, there are several categories of intellectual property rights. The three most common IP rights that are included in licensing agreements are trademarks, copyrights, and patents. Each of these types of IP can be registered with either the US Patent and Trademark Office or the US Copyright Office. Registering your IP for federal protection will provide for the broadest rights and control over your IP. It is generally best to register your trademarks, copyrights, and patents prior to agreeing to license use of your IP rights to others.
Important Considerations for Your Licensing Agreement
It may go without saying, but always have your licensing agreement in writing. A handshake deal is never a good idea when licensing use of your (often most) valuable asset to another person or company. If it isn’t in writing, it becomes much harder to enforce your rights.
- Who can use the IP?
- What is the IP?
- How long does the license last?
- Where can the IP be used?
- How the IP can (and can’t) be used?
Also, the agreement should make it abundantly clear that it is a license only and all ownership rights in the IP will remain with the licensor. It’s also important to decide if the license is going to be exclusive—will the licensor be able to license use of the IP to other people or companies?
The scope of the license is one of the most important sections of the licensing agreement and should not be overlooked.
Compensation. How will the licensor be compensated for allowing the third party to use its IP? Compensation in a licensing agreement can be structured a variety of ways. Royalty payments, one-time payments, or monthly lease payments are common forms of compensation. There may also be ongoing “maintenance” charges that need to be taken into account when structuring the compensation section of the agreement. The licensor will also want to receive some form of accounting statement from the licensee if they are going to collect royalty payments. All of these considerations should be clearly spelled out in the compensation section of the licensing agreement.
Other common terms. Other common terms included in licensing agreements are termination rights, assignment rights, warranties, representations about the IP, limitations of liability for the licensor, confidentiality provisions, indemnification of the licensor, and choice of law and venue provisions.
If you’d like to learn more about drafting and negotiating IP licensing agreements, please contact us today.