There are many considerations to be made when businesses intend on entering negotiations for an intellectual property license.
Intellectual property licenses can be attractive in commercial contracts because they may be structured so that the risks of investment of research and development may be shared by more than one company or business. There are a number of important points that licensors and licensees should be aware of when negotiating intellectual property licences agreements for the commercial use of intellectual property.
There are a number of factors and legal issues which should be considered when preparing for negotiation of intellectual property licenses and agreements. These vary considerably depending upon the type of intellectual property and the particular asset which will be licensed, the structure of the commercial arrangements on the table, and intentions of the contracting parties. Businesses first entering negotiations without knowledge of the structure of the background intellectual property rights being negotiated and the trips and traps of business agreements, are at a disadvantage to ensure that the legal agreement reflects what has been commercially agreed during negotiations.
One of the leading considerations in intellectual property licences is defining precisely what assets and rights are being licensed; the permissions to be granted to the licensee to use the assets. It is important to get this right as getting it wrong may lead to serious disputes and in the worst case litigation between the parties to the licence.
So obviously, it should outline what property an IP license is referring to. This is more easily said than done, with many IP lawyers glossing over the detail of the property being licensed, with the end result that the property is ill-defined and territory rife for disputes later on, after the honeymoon period of the contract is over. Furthermore, licences should detail precisely the terms of use of the property – this can vary considerably depending upon a wide suite of factors, including the nature of the intellectual property, the purpose of the contract (i.e. the reasons why the parties are licensing the intellectual property rights in the first place).
For instance, the licence may license use of trade marks (say, in a franchising agreement), patents (to grant permission to use a new and innovative technology), registered designs (for the manufacture of seats) or copyright (for a musical work). The parties should consider a variety of scenarios and decide what limitations they intend to place on the arrangements. As well as this, an assessment of what might be done once the licence is signed should be undertaken, for a health check on the licence to be granted.
This may cover limits on the media in which the IP rights can be used, the geographical extent of the licence, the market verticals in which the licensee may use the assets (in the entertainment industry, but not manufacturing or any other industry), all the way through to whether or not the prospective licensee is free to licence out an end product to third parties.
Another dimension to consider is that of the licensor’s own property rights. Will it remain free to license out again the IP rights currently subject to licence (a non-exclusive licence) or is the license an exclusive arrangement, where only the licensee is free to use the IP? The consequences of this choice alone is important, because granting an exclusive licence will mean that the licensor itself will not be able to use the intellectual property rights.
Without clear direction on how the intellectual property may be used, disagreements, conflicts of interest, and indeed the need for dispute resolution may arise down the road.
The legal identity of the licensee should be made very clear. One common issue in licensing is that of confusing the actual person downloading, obtaining, and/or utilising intellectual property covered the license with the company to which that individual belongs. In all cases, whichever person is intended to be licensee, whether an individual or corporation, this should be clear to all parties by reference to the agreement.
In all but low-value licences to consumers, company searches should be conducted to ensure that the licensor and the licensee properly identify the legal entity with which it is contracting. Neglecting to conduct this small check, which often takes only minutes, can lead (and frequently does) to eye-wateringly complicated legal issues prior to enforcement of rights; these problems are unnecessary and easily avoided.
Other issues to consider include the duration of the licence and the circumstances in which the intellectual property license can be terminated. Will it be able to be terminated for failures to pay licence fees, or must termination be foreshadowed by a notice period or suspension of rights associated with the services? If the licensor wishes to maintain an ability to terminate the agreement in particular circumstances this must be made clear in the termination clauses of the contract.
In the event of disagreements, the licence should fix the law under which the contract will be interpreted, and fix the jurisdiction in which disputes will be resolved, whether by arbitration, litigation or some other alternative dispute resolution process. Without contingency planning such as this, it will often lead to the commercial party with the greatest bargaining power which will win in the event of a dispute which it is unwilling to compromise on.
It is therefore an incentive to all licensing parties but in particular small businesses and self-employed freelancers to draft and consider well the terms of any licensing agreement.
Our London IP solicitors provide specialist advice on intellectual property licenses, including drafting, negotiation or enforcement of IP licenses. We also advise on disputes with intellectual property rights.
