How Do I Draft an Intellectual Property Licence Agreement?

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Table of Contents

• What Is an Intellectual Property Licence Agreement?
• What Are You Licensing? 
• Is the Licence Exclusive or Non-Exclusive?
• Is the Licence Perpetual or Limited to a Particular Term?
• Is the Licence Revocable or Irrevocable?
• Is the Licence Non-Assignable or Assignable?
• Is the Licence Sublicensable or Non-Sublicensable?
• Is the Licence Australia-Wide, Worldwide or Limited to a Particular Territory?
• Key Takeaways 

If you own a registered trade mark, you may need to allow a third party to use it to advertise your product. Alternatively, you may have taken a great photograph and had a business approach you, asking you to use it on their website. In both situations, you will likely need an intellectual property licence agreement that sets out the terms on which other parties can use your intellectual property (IP). This article will set out some of the critical issues you should consider when preparing a licence agreement. 

What Is an Intellectual Property Licence Agreement?

Under a licence agreement, you (i.e. the owner of a trade mark, copyright, patent, design or trade secret) agree to allow another party to use your IP. Although the other party can use your IP, you retain ownership. Your licence agreement sets out the terms of the agreement, including whether the licence is:

• exclusive or non-exclusive;
• ongoing or limited to a particular amount of time; 
• revocable or irrevocable;
• assignable or non-assignable;
• sublicensable or non-sublicensable;
• geographically limited; and
• given for a particular purpose. 

Usually, you will have some commercial interest in licensing the IP. 

IP licence agreements can be complex. If not prepared correctly, they can significantly affect your rights. For this reason, you should consider the terms you include in your agreement carefully. 

What Are You Licensing? 

The first point to consider is what you actually intend to allow the other party to use. This is important because one product may include a number of different components of intellectual property. 

You may have intended to only: 

• license one element of the IP in the product, but the other party intended the agreement to have a broader effect; or 
• allow the other party to reproduce your IP but not use it to make a derivative work (e.g. a translation of a book or a new arrangement of a song). 

If this is unclear in the agreement, you could accidentally agree to more than you planned. This is important to consider when licensing IP in Australia. Notably, if your licence ends up conferring more rights than you initially thought, the licence may, in fact, fall under Australia’s franchising laws. Therefore, it is crucial that you clearly define the scope of the licensing agreement.

Is the Licence Exclusive or Non-Exclusive?

You will need to decide whether to grant an exclusive or non-exclusive licence. If the licence is exclusive, the other party is the only person who is allowed to use that IP. The exclusivity can also be limited to a certain duration of time or geographical area. 

A non-exclusive licence means that you can also license the IP to other businesses or people to use at the same time.  

Is the Licence Perpetual or Limited to a Particular Term?

You should decide how long you want to allow the other party to use your IP. You may want to grant the licence on a perpetual basis, which means that the licence will continue indefinitely unless you terminate it in accordance with the agreement. Alternatively, you may wish to put a strict time limit on using your IP. You can do this by including a term in the agreement setting out the duration of the licence. At the end of this time period, the agreement will be automatically terminated. 

Is the Licence Revocable or Irrevocable?

If a licence is revocable, you may terminate and revoke it. This means that you can decide to withdraw your permission to use the IP at any time during the license agreement’s term. If the license is irrevocable, then you cannot simply withdraw your permission to use the IP under the licence. However, you may still be able to terminate the licence if the other party fails to act in accordance with the agreement. If the licence only lasts for a particular term, it will terminate at the end of the term, regardless of whether it is revocable.

Is the Licence Non-Assignable or Assignable?

A licence agreement should specify whether the licence can be assigned or not. If the licence is assignable, the party you have given permission to use the IP can give their rights to another party. This situation often occurs when:

• there is a sale or change of business; and
• a new business wishes to use the IP under the licence.

However, you may not want another party to be assigned these rights. If this is the case, you should specify in the licence agreement that the licence is non-transferable. Usually, the agreement will also address whether the licensee can sub-license the IP to others.

Is the Licence Sublicensable or Non-Sublicensable?

In a licence agreement, it is important to clarify whether it is possible to sublicense the IP or not. If it is sublicensable, the licensor allows the licensee to grant a sublicence to a third party, giving them the right to use the licensed IP under certain conditions.

On the other hand, a non-sublicensable agreement restricts the licensee from granting any sub-licence to third parties for the use of the IP. In this case, only the licensee is allowed to use it and cannot offer access to third parties. Whether sublicensing is allowed or not in the agreement depends on the requirements of the IP licensor and licensee, as well as the level of control the licensor wants to retain over the IP.

Is the Licence Australia-Wide, Worldwide or Limited to a Particular Territory?

An intellectual property licence agreement should specify where the IP can be used. 

As discussed above, this use may be exclusive or non-exclusive. Placing a limit on geographical area may be necessary if you only own the IP in that particular geographical area. 

Key Takeaways 

A licence agreement can be a difficult document to draft. You need to ensure that you clearly outline what you are agreeing to and the extent to which the licensee will be able to use your IP. Failing to do so could mean that you accidentally agree to more than you planned.

If you are unsure about drafting your intellectual property licence agreement, our experienced intellectual property lawyers can assist as part of 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 1300 544 755 or visit our membership page.