With intellectual property (IP) making up such a significant part of a company’s value, it is important that were using an IP licence, you do so in the correct way. Your company may deal with IP in a number of ways, including:

  • licensing it;
  • receiving a licence for it; or
  • having a company structure that requires IP to be licensed between its internal entities.

This article will discuss: 

  • circumstances when IP will be licensed;
  • what happens when IP is licensed;
  • the difference between assignment and licensing; and
  • some tips to be aware of when it comes to IP licences.

What is an IP Licence?

When IP is licensed, the IP owner (the licensor) grants the other party (the licensee) use of the specified IP with particular restrictions, often for a specified period of time.

For example, this period of time may be the term of the IP licence itself or the term of the main agreement.

IP is licensed in most commercial contracts. To simply provide or receive services, there will need to be some grant of licence between the parties. An IP licence serves to set out the details upon which IP is licensed.

IP can be licensed in three different ways:

  1. an exclusive licence, where the licensor can only grant one licence and cannot use the IP during the licence term. This commonly occurs when the licensee is commercialising the licensor’s IP;
  2. non-exclusive licence, where the licensor can grant multiple licences, but can also use the IP themselves; and
  3. sole licence, where the licensor can grant one licence and can use the IP.

For example, IP will be licensed when new IP is specifically created by one party for another, such as when a manufacturer is manufacturing new products and needs to put the licensor’s logo on the packaging.

Intra-Company IP Licence

Many companies will have a dual structure, where one entity within the business holds the IP to ensure it is protected. Usually, this will be the holding company. Another entity receives a licence to use that IP for the purpose of operating the business. In this instance, the companies will need an intra-company IP Licence.

What Happens When IP Is Being Licensed?

IP can be licensed in a very broad way. It can grant the recipient such broad rights that it is almost synonymous with owning the IP. 

However, IP can also be licensed in a very limited, narrow way, so that the licensee has very limited rights to use the IP. 

You will need to determine the scope of the IP that is being licensed and provide a clear definition of ‘Intellectual Property’. If new materials are being created, and are to be licensed, the IP Licence needs to encompass that. If pre-existing IP (IP that was owned by a party before the commercial arrangement began) is to be licensed, this should be specified. It should also be clear that pre-existing IP can only be used in specific circumstances.

Restrictions

You might see the following words in an IP clause to set out the usage and restrictions relating to the IP licence: 

  • non-exclusive or exclusive;
  • irrevocable or revocable;
  • worldwide;
  • sub-licensable or non sub-licensable; or 
  • transferable.

IP may be licensed to allow either party to:

  • perform the services;
  • commercialise the IP; or
  • sublicense the IP.

If your company is licensing IP, ensure that the licence grants the appropriate restrictions on the recipient.

If your company is providing services and therefore licensing IP, you may wish to issue a non-exclusive, revocable, non sub-licensable and non-transferable licence for the duration of the term of the agreement. This licence will allow the client to use your materials, and any new materials and improvements, solely so that they can receive the benefit of your services.

If your company is providing services, you may need a licence from your customer to use their IP in order to provide the services.

For example, if you are developing new software for a client, you will need a licence to use their branding to integrate it with the software.

If your company is receiving the licence, ensure that you have the appropriate rights to use the IP the way you need to. In particular, if you are receiving services, which includes the creation of IP, ideally you will own the new IP once it is created. Licensing may not be enough, and IP assignment may instead be the better option.

IP Licence vs IP Assignment

When IP is licensed between the licensor to the licensee, the IP continues to be owned by the licensor. The terms of the licence will set out: 

  • how the IP can be used;
  • whether there are any restrictions on the licence; and
  • whether one party must make payment for royalties.

When IP is assigned, it is being sold or transferred from the owner (assignor) to the purchaser (assignee).

Key Tips for IP Licenses

  • IP licences should be broad or narrow enough for their intended purpose;
  • sometimes a licence is not enough, and you should expect to receive assigned IP;
  • IP ownership needs to be clear, to avoid breaching the contract; and
  • the appropriate IP needs to be dealt with, whether pre-existing IP, new materials, or improvements. 

Key Takeaways

If done correctly, licensing your IP can be a great way to expand your brand to new markets. Often, having an IP Licence agreement will be the best way to clearly set out the arrangement between the parties. However, sometimes having an IP clause within the main agreement will suffice. If you need assistance drafting or reviewing an IP Licence, contact LegalVision’s IP lawyers on 1300 544 755 or fill out the form on this page.

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