For many businesses, their intellectual property (IP) is their most valuable asset. And for just as many others, using another company's IP is core to their success. So when businesses agree to work together, they use IP licensing agreements to set forth the terms of use and compensation to create a deal that is beneficial to both parties. 

Today, we're going to examine intellectual property licensing from the perspective of the owner/licensor of IP. Let's begin!

What is Intellectual Property Licensing?

Intellectual property broadly refers to creative works such as software or hardware technology, designs, artistic works, and many other forms. IP can be extremely valuable, with the ability to generate significant revenue for those who own their patents, trademarks and copyrights. 

IP licensing contracts are used by IP owners (licensors) to monetize their IP by granting permission to another entity or individual (licensees) to use the IP in return for a fee or other compensation.

Defining the Scope of an IP License

Defining the scope of an IP license requires careful consideration of key issues that are specific to the technology and each party's business goals. Once identified, agreements regarding these issues must be detailed in an enforceable contract. 

IP licenses often address the following and other issues:

• Field of Use - The allowed types or categories of use of the IP by the licensee.

• Territory - The geography where the licensee can use the IP.

• Term - The start and end date of the license.

• Fees - The compensation paid to the licensor, including payment schedule and other essential financial details. There are many ways to structure fees.

• Termination - The conditions that allow either party to end the license before it would otherwise expire. 

• Exclusivity - Exclusive grants are rarely used since licensors almost always want to license IP to multiple parties. If some exclusivity is desired its scope must be carefully circumscribed.

(Some) Key Considerations in an IP License Grant

As the owner of IP, there are many other important considerations when entering into a license. We'll examine a few common ones here, but there is no substitute for consulting with an experienced attorney. 

• Confidentiality - IP licensing often requires giving 3rd parties access to sensitive information related to your IP. You need to ensure your licensing contracts include appropriate privacy and non-disclosure terms to keep your IP secure.

• Retention of Ownership - You need to clearly state you are granting a license but are keeping ownership/title to your IP.

• Royalty Structure and Payment Terms - Establish a clear payment structure, including payment schedule, due dates, currency requirements, and penalties for late or missed payments. 

• Sublicensing - In some instances, a licensee may need to sublicense your IP to another company for usage. An IP licensing agreement must state any restrictions around this, and ensure that you maintain the ability to enforce your rights if there is infringement. 

• Indemnification - (Primarily) protects a licensee against financial losses arising from an IP dispute raised by a third party regarding the licensor's IP. 

• Limitation of Liability - A way to manage risk by limiting the maximum financial liability of each party in the event of a dispute.

How a Licensor Can Get the Most Out of Its IP License Agreement

Your top priority when entering an IP agreement as the licensor should be maximizing your IP's monetary potential. However, it is equally important to foster a positive and beneficial relationship with the licensee. 

Here are some additional considerations to help you build a strong relationship with your licensees, while getting the most out of your IP. 

How Will Your IP Be Used?

Understanding the intention of your licensee is key to drafting a strong IP license agreement. At the very least, you should be familiar with their business goals, financial situation, and specific use case for your IP. 

Establish Clear Boundaries

You must clearly state the limits of use. This will prevent misunderstandings over issues such as the geographic regions where your IP is used, the way it is used, and how long it can be used. 

Incorporate Alternative Forms of Consideration

Being open to utilizing alternative forms of compensation for access to your IP is an effective way to maximize revenue. For example, some IP agreements stipulate “milestone payments” when a specific trigger is reached, such as a successful product launch, or a reaching a target number of sales. 

Negotiate Fair Compensation

When entering into an IP licensing agreement, neither party should feel like they are being exploited. Excessive royalty rights, or extremely restrictive usage terms can jeopardize the long term success of the relationship. It's best to work towards an agreement that benefits all parties, so the relationship can continue fruitfully for a long time. 

Conclusion

As a licensor, Intellectual property agreements are core to the success of your business. IP license agreements done correctly clearly define your ownership rights and the terms and conditions of accepted use by your licensees.

While this article offers a basic overview of some of the issues in IP licensing, negotiating and drafting IP license agreements is a very complex and nuanced process. You should always seek help from an experienced attorney before signing any license agreement. 

For 25 years, SVT Law Advisors has helped businesses negotiate favorable terms for both licensors and licensees. We work to ensure that all agreements we negotiate provide comprehensive coverage that mitigate risk and optimize revenue. 

Don't risk the value of your intellectual property by negotiating alone. Contact SVT Law Advisors today and let us help you negotiate, draft and enter intellectual property license agreements with confidence.