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There are many reasons why you would use an intellectual property (IP) licence agreement. Are you sitting on unused IP? Maybe you recently purchased a business, along with their brand, and the renewal of their IP is fast approaching. Do you need another party to use your IP effectively? Perhaps you have the next big idea, but you don’t have the resources to take advantage of your IP effectively.

Whatever your reasoning may be, an IP licence agreement may be the solution for you. This article will explain what an IP licence agreement is, how it functions and whether you should have one or not.

What is an IP Licence Agreement?

A licence is an agreement between two parties whereby the first party, the IP owner, permits the other party to use their IP. For intellectual property, a licence agreement gives a person or business the right to use material subject to various IP rights. Some examples include the use of:

  • trade marks such as logos and brand names;
  • original works subject to copyright like novels or software code; and
  • patented inventions.

Basically, if you or your business have intellectual property rights, you can license those rights to another party. For example, as the owner of a trade mark, you have the right to ask someone that is not authorised to cease and desist using that trade mark. However, a licence would allow you to authorise certain people or organisations to use your trade mark in an agreed-upon way. These rights depend on the particular nature of the intellectual property that you have. 

For example, a trade mark entitles you to use it for the goods and services that it is registered in relation to. 

When is an IP Licence Agreement Suitable?

The answer to this question is up to you, but you should consider legal, economic and emotional reasons for deciding to license your IP. Ultimately, it is a commercial decision, but some points that you should consider before licensing your intellectual property are:

  • whether you want to retain ultimate ownership of the intellectual property;
  • your ability to adequately exploit your idea commercially; and 
  • whether you have the knowledge and commercial ‘know-how’ to profit from your intellectual property.

The terms of a licence agreement are up to you, but you should consider it from a commercial perspective. Think about what you want and how you can offer it attractively to a potential licensee. Ultimately, the licensee needs to get some kind of benefit out of using your licensed intellectual property.

How Can You License IP?

As the IP owner, it is your right to licence your IP out to another person or company to use. Both you and the other party agree on the terms of this use. This is known as a licensing agreement where you are the licensor, and the other party is the licensee. You and the other party should negotiate the terms of use outlined in this agreement to secure your best interests. These terms regulate the agreement and can include: 

  • Restricting the licensee’s use to a particular geographical location; and
  • The payment of rights in the form of royalties.

In addition, there is more than one type of licence, and each has its own approach to licensing your intellectual property. Types of licenses include:

  • Exclusive, where the owner of the IP grants only one licence and is not able to use the IP themselves;
  • Non-exclusive, where the IP owner can grant more than one license and can use the IP themselves.
  • Sole, where the IP owner can grant only one licence and can use the IP themselves.

Again, you want to make sure that the type of licence you choose and the terms of this licence are commercial. An agreement that is too restrictive to the licensee may put off potentially interested parties. However, you do not want a loose licence agreement because its purpose is to ensure you are getting some kind of benefit out of your unused intellectual property. Therefore, it is important to ensure that the licence is well-drafted and sets out the rights and obligations of both parties.

Key Takeaways

Before you take the next step and draft your licence agreement, there are a few things you should always remember. First, when licencing your IP, you should consider your intentions and decide whether having a licencing agreement is suitable for your particular business. Second, you should determine which type of IP licence agreement is best for your business. Finally, be sure that you consider the benefit that you will receive and the potential benefit that a licensee might obtain from entering into such an agreement with you and your business. If you need help deciding whether a licencing agreement is right for you, our experienced IP lawyers can assist. Contact them on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

If I licence a trade mark, how can my licencee use it?

If you licence a trade mark, your licencee can only use the trade mark in the category it was registered in.

Are there different types of IP licences?

There are several different types of IP licences, including sole, exclusive and non-exclusive licences. It is important to consider which type of IP licence is best for your business before coming to an agreement with a licencee.

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