Know-how of IP Licensing
Creation of Intellectual Property and maximizing its value have become vital for survival and success of businesses today. Though the derivation of benefits of such value can be done in multiple ways, Licensing of Intellectual Property has emerged as a very effective means for commercialization of Intellectual Property assets. IP licensing not only favors the IP owners but also is advantageous to those who wish to acquire latest and required technology/ established trade mark without investing huge amounts into research, development or advertisement.
To begin with, Licensing is the contract between minimum of 2 parties wherein the Licensor (which usually is the IP right owner) allows the Licensee the specified rights over the Intellectual Property for the given period of time in exchange of consideration value. An IP License Agreement grants rights to the Licensor of usage and other such rights which sans any agreement would have amounted to infringement. This license is applicable to all the types of Intellectual Property viz. patents, trade marks, copyrights, designs. Under a License Agreement, the Licensor retains the title over the Intellectual Property whereas the Licensee only gets the rights as has been decided in the Agreement and in accordance with the terms and condition agreed to there under. The Licensee does not get any right in the title of the Intellectual Property.
TYPES OF LICENSE AGREEMENTS
There are broadly three types of License Agreements-
- Exclusive License– This type of Licensee involves exclusion of everyone including the Licensor from the rights over the concerned Intellectual Property. Exclusive License grants rights only to the Licensee to the extent that such agreement also excludes the Licensor of exercising any right for the specified time.
- Sole License– In this type of license, though the licensee gets the rights over the Intellectual Property, the Licensor also continues to enjoy the same rights and is not excluded from the same. However, the rights over the same property cannot further be assigned to any third party other than the Licensor and the Licensee.
- Non-Exclusive License– This type of License grants rights to the Licensee over the Intellectual Property while simultaneously letting the Licensor to exercise the rights and license the same to third parties as well.
In practice, License Agreements entered into are usually combination of different elements. For ex.- an exclusive license is given within the limitation of one geographical area and another exclusive license is entered into for another geographical area.
Licensing of Intellectual Property is extremely beneficial as it allows flexibility and allows the parties more control over how and which rights are to be exercised and till what extent. An Intellectual Property License can provide one with reduced and shared risks, increase in market penetration, generation of revenue, access to expertise, competitive edge and opportunity to minimize capital investment. To however derive the maximum benefit out of License, it is important that the agreement is made keeping in mind the impact that clauses and their interpretation would have over the parties involved.
MAJOR COMPONENTS OF LICENSE AGREEMENT
A written IP License Agreement should primarily contain clauses related to grant of rights, time period, consideration in exchange of grant, guarantees, representation and warranties, indemnities and other such clauses that are incorporated as per the requirement of parties. A License Agreement is a contract and should contain all the requisites as are required by Indian Contract Act, 1872. Additionally, the parties can incorporate provisions to govern their relationship within the agreement.
- Parties- It is necessary that the Agreement clearly defines the parties and their representative, if any that are entering into the Agreement along with their addresses.
- Recital or grant clause- It conveys the Intellectual Property that is the subject of the License Agreement, its usage and sets forth the rights that are being granted to the Licensee. It is vital that the parties lay down very clear provisions regarding the rights that are being granted to avoid conflicts at the later stage.
- Consideration- It constitutes as one of the most important clause of the Agreement. It can be formulated in many ways with the Licensor getting the License Fee initially and periodic royalties depending upon the revenue or sales of Licensee. In some cases, cross-license can also be the form of consideration where the Licensor is granted license by the Licensee. Licensor can demand reports of sales to ensure accurate payment of royalties.
- Term- Time period of the license should be specified very clearly in the Agreement. The term of License should not exceed the protection accorded over the property.
- Warranty- Provisions related to the warranties are extremely important. These are the promises made by parties to each other which if false, would result into breach of the Agreement. Warranties ensure basics such as the Licensor is the owner of IP and has right to license the IP, which if turned out to be false, would breach the Agreement.
- Indemnity- Provisions related to indemnity sets out the financial responsibilities that would be borne by the parties in cases such as breach of representation or warranty given by the parties or breach of Agreement due to other reasons.
- Dispute Resolution- It is beneficial to incorporate provisions related to dispute resolution to ensure smooth proceedings in case a dispute arises. Arbitrations are also a preferred system for dispute resolution and same can also be rendered to for disputes.
- Termination- Agreement should contain clauses as to what would lead to termination of contract. This includes negotiated reasons that would lead to termination and same should also be related with the provisions of indemnity.
LICENSE FOR THE LICENSOR
The Licensor is the owner/author that grants rights to Licensee over its Intellectual Property while still retaining the title in the property. Licensor has multiple benefits from licensing such as earning revenue from IP without actually engaging into cost of establishing a set up or when one wishes to hand over business operation to another but continue to earn. Licensing also helps when the Licensor wishes to penetrate further into the market or expand to other geographical areas and take local expertise into use. It also provides option of exit in case the partnership doesn’t work out. It is however important for the Licensor to keep in mind a few things before and while entering into a contract. Licensor should first understand that mere creation of IP does not result in income. A successfully created IP has to be rightly protected and effectively managed before it can be commercialized. Therefore, Licensor has to make sure that the IP is registered, renewed and consistently protected against infringers. A well protected IP is highly valued in the market. Licensor while entering into the Agreement should be very clear on provisions of exclusivity, royalties, whether sub-licensing is allowed, cost of keeping-up of the IP portfolio, provisions regarding quality-check etc. for efficient and maximum benefit of its IP.
LICENSE FOR THE LICENSEE
License Agreement can work wonders for the Licensee if entered into carefully. Licenses are a fast way to acquire a technology without engaging into huge cost of R&D or opening up a business with an already established goodwill. Licenses give access to latest developments and technology which in return gives edge to the business. A licensee however should be watchful of a few provisions since it would be the one to give royalties and licensee fees to the licensor. A licensee, before anything else, should decide on whether the licensed property would be able to generate desired revenue and act advantageous for the business. Once the marketing and strategic aspect is handled, licensee should conduct due diligence of the IP involved in the Agreement. The up-keep and maintenance of IP is fundamental for the Agreement. It is important to put it in paper all the purposes which one would be using the IP for to avoid disputes. Licensee should insist on clear demarcation of cost sharing to further avoid increased costs. It is important to know and express of what is expected out of the Agreement for better drafting of the terms and conditions.
Licensing has created many successful businesses due to its benefits of collaboration, access to required techniques and know-how and expansion of market area. However, it still remains vital that the parties involved in the Agreement fully understand what licensing brings and takes to decide on the clauses of the Agreement. An effective licensing coupled with long-term relationship with the partners is now a tested method to create successful business.