Reading time: 4 minutes

Many businesses generate revenue based on intellectual property (IP) they develop. These businesses sell or license the IP they have developed to others. When selling IP, typically the business will assign the IP to another business using an assignment agreement. The assignee then becomes the new owner of the IP. Alternatively, the owner may license their IP using 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 the IP right is assigned to the assignee, a licence agreement needs a term. This term may be: 

  • set (for example, it may specify that the license will only operate for a year); or 
  • perpetual (where the parties choose to enter into an agreement that continues indefinitely). 

In some ways, a perpetual license agreement may have a similar economic effect to the results of an assignment agreement. However, it does not change the owner of the IP. A perpetual licence can also be revoked if the licensee or licensor breaches the terms of the agreement.

Revocable or Irrevocable

The issue of whether a licence is revocable ties into the issue of its term and conditions. If you enter into a perpetual, irrevocable licence, the economic effect of the contract will be similar to an assignment. However, an assignment differs in that you will no longer own the IP if you assign it. A perpetual license allows you to remain the owner of the IP. 

If the licence is revocable, then the licensor has more control over the way in which the licensee can use the IP.

Exclusivity and Right of Sub-Licence

It is important to work out whether you wish to provide an exclusive licence or a non-exclusive licence. For software products, it is unusual to provide an exclusive licence. If you are licencing the right to use another type of IP, such as a training course, an exclusive licence might make more sense. Allowing your licensee to sell sub-licences is another issue to consider. 

Licence Fee

You will probably want to receive payment for licencing your IP. There are various ways of arranging this.

For example, you could choose a fully upfront fee or monthly payments. The type of fee set up you should go for 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 the IP. You may also consider whether the licence will be restricted to a certain geographical location. 

Key Takeaways

Assignment agreements assign IP from one owner to another. 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. If you need help with assigning or licencing your IP, contact LegalVision’s IP lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is an IP licence agreement?

The owner of IP may license out their IP using a license agreement. Licencing IP allows the owner to retain possession of the IP whilst giving permission to others to use the IP.

How do I structure IP licencing fees?

There are various ways of structuring IP licencing 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.

What clauses should I include in a licence agreement?

You should include clauses such as the term of the agreement, whether the agreement is revocable or irrevocable, whether the licence is exclusive and what the licence fees will be.

Webinars

Raising Capital: Getting Investment Ready

Tuesday 6 April | 12:00 - 12:45pm

Online
Are you a founder or business owner looking to raise capital? Attend this webinar to learn the strategies to prepare your business for investment.
Register Now

The COVID-19 Vaccine Rollout: Considerations for Employers

Thursday 22 April | 11:00 - 11:45am

Online
Are you a business owner or employer? Attend this webinar to learn about what you need to know about the COVID-19 vaccine rollout.
Register Now

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. From just $119 per week, get all your contracts sorted, trade marks registered and questions answered by experienced business lawyers.

Learn more about LVConnect

Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

  • 2020 Excellence in Technology & Innovation – Finalist – Australasian Law Awards 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice – Winner – Australasian Lawyer 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Fastest Growing Law Firm - Financial Times APAC 500 2020 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review 2020 AFR Fast 100 List - Australian Financial Review
  • 2020 Law Firm of the Year Finalist - Australasian Law Awards 2020 Law Firm of the Year Finalist - Australasian Law Awards
  • Most Innovative Law Firm - 2019 Australasian Lawyer 2019 Most Innovative Firm - Australasian Lawyer