What are the Benefits of Intellectual Property Licensing

Licensing intellectual property (IP) can be hugely beneficial to both IP owners and IP users. The former can generate income from their innovation and originality while the latter can make use of something that already exists without having to go to the trouble of creating something from scratch.

It is important to remember that IP licensing covers the full spectrum of IP rights from trademarks, patents, registered designs, copyright and confidential information such as secret manufacturing processes and any sort of confidential know-how. Despite the overwhelming discourse about IP rights in the technology sector, it is something that is applicable to virtually any sector of the economy whether it is branding goods, adding music to an advertisement or acquiring rights to use software.

Whether you are a rights holder or an individual or business user looking to take advantage of IP rights, there are some important points to bear in mind.

What is an Intellectual Property Licence?

An intellectual property licence is a permission or authorisation to do something which takes advantage of an intangible asset that belongs to another party.

In the world of IP, doing something without a licence or without applying for one is likely to be a breach of the owner’s rights which are protected under a variety of intellectual property laws, including the Copyright Designs and Patents Act 1988, Patents Act, Designs Act or Trade Marks Act, as the case may be. Without the licence, to use the relevant intellectual property would be an infringement. The licence makes the use of the IP described in the licence lawful.

The protections offered to IP owners creates an opportunity for them to manage the way their rights are used and to profit from them. IP licensing is an essential part of this process. It enables the parties, the licensee and the licensor, to agree the terms and conditions upon which the IP is to be used.

Examples common to almost everyone include licences to use the software in your smartphone or your computer, such as the operating system and Apps. Commercial software licences are not usually as long or as complex as those used by say Apple or Google to license their software. Licences do not need to be complicated to be legally effective. However they should cover the things that need to be covered, such as the scope of use of the IP, warranties and limitations of liability, to name a few.

At a business to business level, IP licenses are normally subject to negotiation. Important questions to bear in mind include:

• Who are the actual parties to the licence if corporate entities are involved;
• What are the fees to be paid, and how are they calculated;
• What is the duration of the licence;
• What is the scope of the licence – what is included, is it exclusive, is it limited by geography, is use limited to a particular market segment;
• What rights are being granted and what restrictions are there;
• How is infringement managed;
• What warranties or indemnities are required;
• If the IP is developed, who owns it;

These issues are just a starting point; negotiations are normally required which depend upon the type of IP, the industry sector and the commercial intentions of the parties.

What are the Benefits of Intellectual Property licensing?

There are a number of advantages associated with intellectual property licensing.

1. Licensors can benefit from important sources of additional revenue if other organisations wish to use their creations. Licensors may receive a fee without assuming any of the risk involved in manufacturing or promoting products for example or they can use resellers to sell their creations in markets which they would otherwise not be able to reach.
2. Licensees also benefit from licensing by making use of an innovation without investing in the costs and human resource associated with research and development. Also, the licensee can tap into expertise which may not have been previously available to them.

Clearly collaboration between licensors and licensees can provide significant commercial opportunities for IP.

The Potential Pitfalls of Intellectual Property Licensing

Despite the obvious benefits, there are a number of factors which a party should consider before licensing their product or obtaining an intellectual property license. A licensor should be wary of reducing the value of it IP, which will undoubtedly happen if too many businesses have access to its rights.

From the perspective of the licensor, it is advised that it conducts a cost-benefit analysis to assess whether the potentially significant royalty payments will work within the commercial plans. The scope of the IP license should be agreed by the parties at the outset. Provisions such as exclusivity/non-exclusivity, duration and governing law should be clearly defined.

For specialist advice regarding intellectual property licensing contact Leigh Ellis on +44 20 7353 1770.