Out of the many assets your business may own, its intellectual property (‘IP’) is a key asset that should not be overlooked. In fact, while your business will naturally develop and accumulate IP assets in the natural course of trading, IP can often be a source of revenue if you decide to sell or license its IP for others to use. When selling IP, typically, the business will use an IP assignment agreement. Alternatively, you may license their IP with a license agreement. Licencing IP allows you to remain the owner of the IP whilst giving permission to others to use the IP. This article sets out a number of important clauses in a licence agreement.
Term of Licence Agreement
Unlike an assignment agreement, which is completed when ownership of the IP right is transferred to the assignee, a licence agreement does not transfer ownership. Instead, it allows you to give permission for others to use the IP. Because of this, a license agreement must identify a term. The term may be ‘set’ (for example, the license may be ‘set’ for a fixed period of 1 year), or it may be perpetual – which means that the parties agree for the license to operate for an indefinite amount of time,
A perpetual license agreement may, in some ways, have a similar effect to an assignment agreement. However, it does not change the IP owner. A perpetual licence can also be revoked if you or the licensee breaches the terms of the agreement.
Revocability
A revocable license agreement simply means that the agreement is capable of being cancelled and, in effect, gives you more control over the way the licensee can use the IP. By contrast, an irrevocable license agreement means that the agreement cannot be cancelled, and you have far less control over the way the IP is being licensed to be used.
Often, whether an agreement is revocable or irrevocable is considered alongside the terms of the agreement. For example, a license agreement that is entered into perpetually and is irrevocable would have almost the same effect as an assignment agreement. However, importantly, you will always retain the ownership of the IP, whereas assignment differs in that you will no longer own the IP if you assign it.
Continue reading this article below the formExclusivity and Right of Sub-Licence
It is important to work out whether you wish to provide an exclusive licence or a non-exclusive licence. An exclusive licence means only the licensee can commercialise and use the licensed IP. It is unusual to provide an exclusive licence for software products. However, if you are licensing the right to use another type of IP, such as a training course, an exclusive licence might make more sense. Whether or not you would like to allow your licensee to sell sub-licences is another important issue to consider.
Licence Fee
The fee is one of the primary considerations when drafting and negotiating a licensing agreement. As the IP owner, you likely want to receive payment for allowing a third party to use your IP. This is especially the case if the licensee is using your IP to generate revenue. There are various ways of setting out fee options, such as upfront and one-off payments or periodic payment periods (such as monthly).
The type of fee arrangement you should choose will depend on the other terms of the licence agreement. For instance, if you are entering into a perpetual, irrevocable licence agreement, you will want to be paid upfront.
Alternatively, you may also want to be paid royalties in addition to a fixed licence fee. Royalties can be calculated on a number of factors, such as the:
- number of products sold; or
- profit generated due to licensed IP.
Modifications and Geographical Limitations
Finally, you will need to decide if you are happy for the licensee to modify the licensed IP and whether you will allow them to copy or reproduce it. You may also consider whether the licence will be restricted to a certain geographical location.
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Key Takeaways
Assignment agreements assign IP from one owner to another, whereas licence agreements allow the owner to retain their rights to IP but allow others to use the IP for their benefit. License agreements are very common and can be used in a wide variety of circumstances. Make sure your licence agreement is tailored to your individual circumstances and includes all the relevant clauses. Some key clauses you may consider are:
- the agreement’s term;
- whether the licence is revocable or not;
- exclusivity and right of sub-licence;
- the licence fee; and
- modifications or geographical limits.
If you have any questions or need assistance with licencing your IP, contact our experienced IP lawyers as part of our 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.
Frequently Asked Questions
An IP license agreement is a contract that allows the IP owner to keep possession while also giving permission to others to use the IP. Only the IP owner can authorise a license agreement.
You have various choices when choosing how to structure your IP licensing fees. For example, you could choose a fully upfront fee or monthly payments. Alternatively, you may also want to be paid royalties in addition to a fixed licence fee.
You should include key clauses such as the agreement’s term. You should also state whether the licence is revocable and exclusive, the licence fee and how it is to be paid.
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