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Your business may own intellectual property (IP) rights over certain designs, logos, creations, and other aspects of your business. If you wish to profit from your IP, you might consider entering a licence agreement with another person. It gives the other party a right to use your IP in an agreed way for a sum of money. If so, it is important to understand what this means and that licensing your IP differs from selling it. Where you wish to licence your IP, the usual contract for doing so is known as a licence agreement. Correctly drafting the terms of your licence agreement is essential to ensure you receive the maximum benefit from your IP. This article explains what you need to know about licence agreements, so you understand how to licence your IP.
What is Intellectual Property?
Intellectual property (IP) is wide-ranging and can cover many elements owned by a business. Broadly, your business is likely to own IP over what it creates or designs. For example, you might have IP rights over your business‘:
- name;
- logo;
- jingle;
- brand colours; and
- other creations.
There are three main ways to protect your intellectual property, namely:
- through registration of a trade mark;
- by automatic copyright; or
- by applying for a patent.
This aim is to protect what is unique to your company, including commodities which have come into creation during the course of your business rather than things which are generic to many businesses. However, you should note that you could also own IP because your business purchased it from another party in the past.
Having the rights to certain IP gives you exclusive access to its use. If another business were to use your registered trade mark without your consent, you would have legal options available to stop them. Likewise, with exclusive use, you might be interested in selling or licensing your IP.
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Difference Between Licencing IP and Selling IP
If you are licensing IP, you are lending it to another party. This is comparable to when a car dealership provides your business with a car on a company car loan basis. Where the car dealership loans the vehicle, the end-user, such as you can drive and park it as you wish with some limited exceptions. Similarly, when you licence IP, you create a licensing agreement concerning that licence.
However, a car dealership can also sell the car outright to your business as the consumer. You are free in these circumstances to sell the car to others or loan it on to a further party. This is the same for licensing IP where the IP will be transferred through an assignment agreement allowing them to do what they wish with your IP.
Another example comparable to licensing IP is a tenancy agreement. A tenancy agreement allows you to use and live in the house until given a notice period to leave, but you cannot sell it as your own.
Licencing your IP can protect another company from acting like it owns your valuable product.
An Example
Imagine your business provides digital maps for satellite navigation systems. It has spent years:
- obtaining satellite images;
- marking roads and landmarks onto digital maps; and
- building up contacts with companies.
All of this takes up significant investment in resources for your business, such as equipment and employees, which your business now wishes to recoup.
Next, imagine a medium-sized car manufacturer approaching your business. Whilst they would be a welcome licensee, they only sell a fraction of the cars sold by BMW, Audi or Ford each year.
That car manufacturer may ask to purchase your digital map software to be used in all their cars without limitation. However, allowing them to buy your IP outright would also enable them to sell that software to other car manufacturers.
Instead, it would be much preferable for your business to licence the digital map software. The terms of your licence agreement would allow you to restrict them from selling your products to other parties. It could also agree on further key details such as:
- the frequency of updates to the maps;
- what would constitute unauthorised use;
- a clause controlling the length of the licence, such as whether it is for a fixed period of time or on a ‘rolling’ basis (e.g. it will continue indefinitely until that party gives your business notice of wishing to end it); and
- whether the licence fee is to be paid as a lump sum or on a monthly or yearly basis.
Obtaining legal advice on a bespoke agreement is likely to be a reasonable cost given the protection it affords your business. A well-drafted licence agreement can set clear restrictions on what the other party can do with your IP and how far they can benefit from it.
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Key Takeaways
Licence agreements are beneficial in providing your business with certainty about using your IP. As you are licensing your IP rather than selling it, you can control what the other party does with your IP. You can do this by detailing the conditions in a licensing agreement. This can state, for example, how long the licence agreement is for and what might be unauthorised use of the IP.
If you need help with a licence agreement, our experienced commercial contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
There is no standard template for licence agreements as they are bespoke and drafted to protect your business fully.
Yes, this needs an assignment agreement. The main difference is that the other party can do whatever they want with your intellectual property.
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