You have come up with a fantastic invention, one that is unique, useful and could make the world a better place (or at least a little more efficient). Great inventions always start with an idea. The idea must come a long way before it becomes a product worthy of releasing to the market, but it is the all-important seed.

Ideas, in and of themselves, are not afforded automatic protection by the law. The most effective way to protect your idea is to keep it to yourself. However, if you are interested in commercialising your idea, this is going to be difficult. You will want to conduct market research, raise funds or employ people to help you develop your idea or create a prototype, so you are going to need to talk about it. If you are entering into serious discussions about your idea, it might be prudent to enter into a Non-Disclosure Agreement (NDA), also known as a Confidentiality Agreement, with the person or company to whom you are disclosing your idea. By entering into an NDA, you help to ensure that your idea will stay confidential and if it doesn’t, the NDA will give you legal recourse including suing for damages.

Once you establish the potential commerciality of your idea, you will need to seek appropriate IP protection for it. For an invention, a patent will be the relevant IP right but other types of IP rights include copyright, trademarks and trade secrets. Some rights are automatic (E.g., copyright) but others such as the patent, need the inventor to take certain steps to have them registered.

Once you secure appropriate IP protection, you will then need to work out how to proceed with the commercialization of your invention. Some inventors may wish to manage the development, manufacture and marketing of their invention themselves. While this maintains their direct control over the processes and may be potentially more lucrative, it also involves a significant outlay. The simplest of inventions can cost hundreds of thousands of dollars to manufacture. The licensing of your IP rights can be the way to go if you’re short on funds or even just reluctant to make a huge financial commitment.

Licensing

Licensing is the process where one party (the licensee) uses the IP rights of another party (the licensor) in return for some form of compensation. In terms of your invention, you would be the licensor, and you would agree to license the commercial use your invention for a period of time. Typically the licensee would manufacture and market the invention, and the licensor would either receive an ongoing payment (a royalty) or a lump sum payment. It’s important to note here that you still retain the legal and beneficial title to the invention.

Drafting the Licence Agreement

A good licence agreement should address the following:

Parties – The parties to be bound by the contract should be clearly identified.

The scope of the licence – The actual grant of the licence is a key term of your licence agreement. It states what the licensee is permitted to do and often sets out important limitations. It is, therefore, imperative to be clear, complete and specific. Vague and imprecise language can lead to conflict! You also need to consider things like improvements to your invention. Will the licensee be allowed to make improvements to the design? Who will own the rights to those improvements?

Term – The commencement, duration and termination of the contract must be clearly stated in the agreement to avoid any uncertainty.

Territory – Where the licensee is allowed to exploit the IP should be clearly defined. Licences may be worldwide, cover a region such as Australia and New Zealand, or apply to one particular nation. The parties come to an agreement on the territory, which usually depends on where the licensee wishes to use the IP: where is the licensee going to sell the product? Is it going to be sold online?

Type of licence

Licences are usually:

  • Exclusive – only the licensee can use the IP;
  • Sole – when the licensor/licensee each has rights to use the IP; and
  • Non-Exclusive – the licensor can grant multiple licences with no special status afforded to any of the licensees

Sublicensing

Your licencing agreement should clearly state whether the licensee is permitted to sublicense. There are good reasons to allow sublicensing. For example, it might be a way to reach the entire territory covered by the licence if the licensee is not able to do that on its own. Also, the licensee may be part of a corporate group with related entities who may be in a better position to exploit the IP.

Compensation

You will need to be clear on how and when the licensee will pay you, how royalties will be calculated and if it’s a cross-border licence, what the currency of payment is.

Conclusion

There are many other factors that should be addressed in an IP licence agreement and these will vary depending on what IP rights are being licensed. It is important to have a clear sense of what you want to do with your invention and get some good legal advice when drafting your IP licence agreement. For more information, get in touch with our IP team on 1300 544 755.

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