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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 to use it on their website. In both of these situations, you will likely need an intellectual property licence agreement setting out the terms on which other parties can use your intellectual property (IP). 

This article will set out some of the key 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;
  • geographically limited; and
  • given for a particular purpose. 

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

For example, you might receive payment for the licence or brand exposure. 

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 Licencing? 

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. 

For example:

  • a book can include pictures and text; and
  • software can include code as well as a protected system or method.

You may have intended to only: 

  • licence 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. Therefore, it is very important that you clearly define the scope of the licencing 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 that is allowed to use that IP. The exclusivity can also be limited to a certain duration of time or geographical area. 

For example, the other party may be the only person with a license to use the material in NSW.

A non-exclusive licence means that you can also licence 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 the use of 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 term of the license agreement. 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-transferrable. Usually, the agreement will also address whether the licensee can sub-license the IP to others.

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

A licence agreement should specify where the IP can be used. 

For example, the agreement could state that the other party may only use the IP in:

  • Australia;
  • NSW; or
  • Sydney. 

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

For example, you might own a trade mark in Australia that is registered to somebody else in Germany.

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, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

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