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Licensing your intellectual property (IP) can be a commercially beneficial opportunity for your business. As a licensor, you can licence your IP to other businesses or individuals. If you are considering licensing your IP, you should also consider the rights and limitations you place on your licensee. An IP licence agreement will specify the relationship, rights, duties and obligations between you and your licensee. This agreement will specify how the licensee can use and exploit your IP based on the agreed terms. This article sets out some of the key considerations for drafting a sub-licence clause. 

What Is a Sub-Licence?

When your licensee grants a third party the rights to use your IP, this party is known as a sub-licensee. As a licensor, you should review any potential sub-licence opportunities to ensure the sub-licensee is subject to the same terms and conditions of the licence you have with the licensee. In terms of restrictions, you should consider if you would like a sub-licence clause inserted into your IP licence agreement. You will have an IP licence agreement in place with your licensee to use and exploit your IP based on the agreed terms. 

Sub-Licence Clause

If the licensee engages a sub-licensee, the licensee should agree to remain primarily liable to fulfil their obligations under the agreement.

Considerations for the Licensor

As a licensor, you should review the IP licence agreement to see whether:

  • your licensee can further sub-licence to other third parties, and 
  • your licensees are aware of their rights and obligations under the IP licence agreement.

A licensee should seek consent from you (the licensor) before engaging a sub-licensee. This ensures you are aware of the businesses that will be sub-licenced. If your licensee wants to enter a sub-licensing arrangement, you cannot withhold consent unless there is a reasonable ground not to give your licensee approval. 

As a licensor, you should ensure that the sub-licensees have the resources and capability to commercialise your goods and services.

Sub-Licensing Overseas 

You may be at a point in your business where you are ready to expand overseas. As a licensor, you may already have partnerships with multinational companies and organisations to help you commercialise your IP overseas. Those companies may engage their own businesses, which become the sub-licensee. Your licensees have obligations to inform you of their plans to sub-licence overseas. You can consent or refuse the proposed sub-licence plans, but your refusal must not be unreasonable.

Who Owns the Intellectual Property?

As a licensor, the first step should be to determine which entity will be the licensor, i.e. licencing out the IP. For example, is it you as an individual or your company? Once you have decided which entity will be the licensor, you should then ensure your IP licence agreement reflects the IP regarding the goods and services you are licensing. 

If you hold IP in your personal capacity, you want to assign your IP to your company to reduce personal liability. Once your company owns the IP, your company will be the licensor, and your company can then licence the IP to the relevant third parties. We can assist by drafting a short IP assignment agreement for this purpose. An IP assignment agreement is a simple agreement as you are essentially assigning the property to your own company. 

You also need to establish who owns the registered IP, such as trade marks, patents, or designs, to ensure the correct owner is licensing the IP. Depending on whether an individual or company will own the IP, you may need to sub-licence the IP rather than assign the IP to then sub-licence it to a third party. We can also draft a simple sub-licence from your company to you if required.

What Is Best for Your Business?

As a licensor, it is vital to understand your relationship with sub-licensees and your options in approving or not approving sub-licences. As a small business, you must protect your IP. Allowing your licensees to sub-licence may be more attractive, but you should consider what is best for your business. For example, we can draft your IP licence agreement to sufficiently protect your business interests, whilst giving licensees and sub-licensees the flexibility to commercialise your business.

Key Considerations Before Entering Into a Sub-Licence Arrangement

Your licensee should already be familiar with their duties and responsibilities to you and your business. This will all be outlined in your IP licence agreement. 

Suppose your licensee is approaching you to discuss a sub-licence agreement. In that case, you should have the following considerations in mind when determining which party to enter a sub-licence agreement with. Therefore, before drafting a sub-licence clause, you should:

  • review your IP licence agreement to ensure each party is aware of their rights and obligations under the agreement;
  • get the necessary documentation from the licensee, and learn about potential sub-licensees;
  • speak to a lawyer if you are unsure about your obligations; and
  • have a lawyer review or draft the sub-licence agreement.

Key Takeaways

The lawyers at LegalVision have extensive experience drafting IP licence agreements and sub-licence agreements for businesses across Australia. We have assisted many different people who work in various industries to expand and grow their businesses and exploit their IP. If you require advice, LegalVision’s experienced IP lawyers can help. Contact us on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is a sub-licence?

If a licensee decides to licence intellectual property to another third party, this is a sub-licence.

Can I refuse permission for a sub-licence?

You can refuse permission for a sub-licence, but your refusal must not be unreasonable.

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