This article has been written by Arya Patil, pursuing the Diploma in Intellectual Property, Media and Entertainment Laws from LawSikho.

Introduction

The main characteristic of intellectual property (and physical property alike) is that it can be bought, sold, gifted, leased and exchanged, although with certain limitations. The owner of the property can stop others from using the property, as well as letting them use it by transacting it in their favour by a legal framework. Intellectual property licensing falls under the latter.

An Intellectual Property license contract is a partnership between the owner/ proprietor of the intellectual property (licensor) and another party (licensee) who wants to use the licensor’s intellectual property. The contract specifies the predetermined terms and conditions under which the licensee can use the concerned intellectual property in various ways, popularly paying a specific royalty to the licensor.

Licensing ordinarily means permitting another company to use your copyrights, designs, patents, trademarks, and other intellectual property in exchange for a fixed percentage of revenue generated or a fee. It’s the most hassle-free way to generate profit and expand a business, as there is no manufacturing, distribution or sales involved. In short, licensing leverages an existing company’s brand and infrastructure in exchange for a small revenue percentage. Licensing can also offer a creative win-win alternative to litigation after IP infringement. Turning infringers into licensees will not only avoid substantial litigation costs but also add valuable future licensing revenue.

Some very popular examples of licensed technologies are Xerox’ Ethernet technology and JVC’s VHS technology. It could be noted that any IPR can be licensed, e.g., high-tech industries, software and science, the music industry as well. 

The main types of intellectual property licences are

• Patent licences.
• Trade or service mark licences.
• Trade secret licences.
• Merchandising licences.
• Copyright licences.
• Combination IP licensing (where different IP assets and rights are combined in a package).

Advantages of Intellectual Property Licensing

IP licensing can equip companies with additional revenue streams, raise brand awareness, improve their reputation, and extend their brands into new markets and geographical areas. Licensing is a comparatively flexible work agreement that can be customised to match both the licensor and licensee’s needs and interests. The following are the foremost benefits and reasons to do international licensing for developing internationally:

• Tap new markets that are not accessible by export from existing facilities.
• Expand without much danger and large capital investment.
• Create a way for future investments in the market.
• A new source of income for the business.
• Retain established markets closed by trade restrictions.
• Political risk is minimised.

It is very attractive for companies that are new in international business.

Need for efficient IP Licensing Strategy

If IP ownership or validity is unclear, it can also pose a significant financial and business risk. Therefore, you need to develop a strategy for IP licensing. You can’t merely register the Intellectual Property and expect an IP licensing programme to follow. Your business strategy should drive trade names, branding options, filing strategy, risk and budgets. Trademarks should be registered, and refusals/oppositions managed efficiently once filed. Renewals and infringements should be monitored while enforcing IP rights, where infringement occurs. Once this is taken care of, commercial opportunities like licensing and joint ventures. Licensing generally involves limited risk and smaller levels of investment.

Essential pointers to keep in mind while developing an IP licensing strategy

Know your assets

Before you can begin to leverage/exploit a brand, you need to establish and define your IP rights:

• Who owns your IP rights?
• Have they been registered as word marks, device marks, word/device marks, trade dress, shapes or slogans, etc?
• What for (goods, services, etc.)?
• Where are the trademarks registered (territories, countries, etc.)

Regular audits will ensure that you have the insight you need to identify your intellectual property that could be licensed for profit. 

Evaluating licensing opportunities

 Pick your licensees with after due diligence and opt for partners/ companies who:

• Are experienced in the field.
• Recognise your product’s core values and will defend them.
• Share your long-term goals.

Terms & Conditions of a license agreement

There is no such thing as a standard license model. All agreements must be made according to your demands and predetermined terms. Before beginning a licensing collaboration, the following details should be discussed and agreed to:

1. the rights to be covered
2. territories
3. exclusivity
4. sub-licensing possibilities
5. revenue model (royalty or lump sum)
6. corporate identity guidelines/handbook
7. reporting requirements

You should also set agreed parameters for success. For example, the royal rate method to evaluate revenue. Effective licensing demands long-term collaboration between the licensors and licensees.

Look out for companies that are infringing your patents

Your job does not get over when you find the right licensee. Look out for the companies using the same kind of good/service/technology you have patented. They might be using your product without obtaining a license, which is not lawful. If they are infringing on your patent rights, an action must be initiated against them. It may be in the form of cease and desist letters or sue them for royalties/ compensation. You can also offer them a license for a fixed cost if they wish to continue working on these patents, but with authorisation instead.

Other Intellectual Property Licensing Tips

• Be good at executing the licensing partnership from the beginning: As a businessman, you have to be diligent about who is using your intellectual property and manage your portfolio effectively, which can be challenging. You have to know what developments & inventions are coming out in related fields.
• Embrace long-term relationships: When entering into a licensing contract, you need to know that you will be in it for a long time with the other party or licensee. Coordinating and constant collaboration will become all the more critical as the business & circumstances change.
• Test the quality of your intellectual property before entering a licensing contract and be sure to maintain it with regular audits. 
• Be careful with exclusivity: It’s important to not sell yourself and your IP entirely to a company if you don’t know your intellectual property’s full potential.
• Describe and place the utmost importance on deal limitations: You have to define the deal’s parameters for both the parties and attach importance to each, especially for the licensor, to understand how the licensee will use the license.
• Assume that the licensing contract is always negotiable. If there is any feature that is ambiguous or unreasonable in the agreement, make it a point to object, it renegotiates the terms and conditions for the right reasons.
• Be proactive in anticipating what could happen to a license in case of an unforeseen change in circumstances: Make sure that the license expires in the event of bankruptcy or insolvency.
• You must maintain a patent right that is strong enough to stand litigation if you ever decide to sue someone. It must be legitimate enough to survive on the grounds of novelty and not get invalidated upon further re-examination.

Risks and Limitations of licensing IP

• Dependent on the licensee’s ability – When you license your IP, you will be dependent on your licensee’s sources, skills, and efforts to make your product available in the market. Hence it would be best if you choose a suitable licensee for using your IP to the market.
• License agreements can be disadvantageous – If the contract does not clearly state about royalty/ revenue sharing, it can be a loss to the licensor. Thus, while making the agreements, all the terms and clauses should be unambiguous.
• The licensor can turn into your competitor – For the people who opt for licensing, the licensee can reduce the licensor’s sale, which may result in a loss to the licensor because he earns only a certain percentage from the licensee’s profits.
• The licensee’s additional requirement: When you once grant the license to the licensee, in the start, he may not ask for something. Still, in later development, he may ask for some contributions in cash or even additional data which may be time-consuming or require your funds. This could be an expensive deal and a setback for the licensor. So it is essential that the agreement clearly mention all the obligations so that the licensee does not demand anything else from the licensor and vice versa. These clauses should be clearly mentioned.

Conclusion 

As more businesses have begun acknowledging the significant commercial value of the intellectual property, it is expected to see more licensing of even the less traditional forms of IP, in addition to just patent rights. As IP attorneys and consultants, one should spend a considerable amount of time understanding the technical, legal and commercial facts of licensing deals. This includes:

• Identifying the technical data information.
• IP & patent rights to be licensed.
• Scope and strength of the IP to be licensed.
• Scope of any development or improvement of the IP.
• The business models and commercial objectives of both businesses (licensors and licensees). 

Knowing these details and facts makes the drafting and negotiation of IP license agreements, royalty terms, development commitments, termination clauses, and other essential provisions much easier. This will increase the chances of a successful licensing collaboration between the parties. We must collectively concentrate on doing what’s needed to harness IP licence management’s optimal power due to the ease of generating profit through this method.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.