While most people do recognize the term "intellectual property," just what does it mean? Intellectual property (IP) is intangible property that is created in someone's mind. Categories include art, literary works, music, inventions, designs, processes and trademarks.

Intellectual property has value just like tangible property, and you have to protect it. A license is contractual right that helps you control, manage and protect your IP.

Licenses and Your Rights

A license allows an intellectual property rights holder (the licensor) to make money from an invention or creative work by charging a user (the licensee) for product use. Licenses protect proprietary rights in things such as software and other computer products, for example. Use a license to give someone permission to do a certain activity or to use your property.

Types of Property Rights

Be familiar with the different types of property rights before you create a licensing agreement. It's also key to know the scope of your rights, such as exclusive property rights. While the law often changes in this area, the best protection is to register for any or all rights that apply to your situation:

  • Copyrights - original works of authorship fixed in any tangible expression form
  • Patents - inventions
  • Trademarks - words, names or symbols identifying goods made or sold, distinguishing them from others

Securing Your Rights

Intellectual property is a complex area of law, and your lawyer is often the best source to help you protect and manage your rights. The US Patent and Trademark Office (USPTO) and the US Copyright Office administer IP laws and rules. Some IP protections, such as copyrights, may be automatic. Other protections, such as patents, are granted by the USPTO and the application process can be rigorous and complex.

Once you have a handle on your IP rights, you can create your licensing agreement.

What Do I Include in a Licensing Agreement?

There is no magic to giving someone a license for property use. In business, a written license agreement is a must. However, the agreement doesn't have to be long or complicated. It can be straightforward and enforceable.

Drafting a license agreement doesn't mean starting from scratch. Although you shouldn't copy them, you can look at existing agreements for ideas, such as the licenses for programs on your computer.

License Scope

First you need to set the license's scope. Licensing is assigning limited use rights for property. Be sure you keep ultimate ownership rights. However, rights need to be broad enough so customers want to use your product. Except for custom-made products, a license is typically be nonexclusive, so you could sell it to others.

However, it doesn't have to allow the licensee to reproduce or pirate the product and sell it in turn to third parties. Sometimes, licenses allow reproduction within a controlled environment such as with enterprise licenses or network licenses. In other cases, a licensor may allow for a resale license, with royalties paid to the licensor.

Revenue from Your Product

Terms controlling revenue streams generated by licensed products are key. With most license agreements on end user consumer software, for example, a one-time license fee is usually paid at purchase. Other arrangements may include recurring payments such as royalties or monthly lease payments. License agreements may also cover ongoing maintenance charges.

Other License Terms

Other license agreement topics to cover include:

  • Term (agreement length)
  • Rights to modify and combine with other products, if any
  • Prohibited uses
  • Transfer and sublicense rights
  • Rights to source code
  • Acceptance, testing and training procedures
  • Warranties
  • Limitations on the licensor's liability
  • Support services
  • Nondisclosure of confidential information
  • Indemnity for infringement
  • Enforcement of remedies
  • Contract termination

Licensing Agreement Enforcement

Federal laws provide stiff civil and criminal penalties for pirating and other unauthorized use of IP. As a licensor, you can file a lawsuit to enforce your rights and ask for remedies such as an injunction and monetary damages. A court could award you actual damages, which includes the amount you lost because of infringement, or you could seek the profits the defendant gained by infringement.

Copyright infringement can also be a crime. Penalties can include prison sentences and hefty fines.

Legal Guidance

Many issues come up when drafting a license agreement. Laws relating to intellectual property can be extremely complicated. An attorney can provide invaluable help with drafting your agreement and enforcing it.

Questions for Your Attorney

  • Can you review my first draft of a licensing agreement for my product?
  • What words should I use in my licensing agreement so that I keep ultimate ownership rights?
  • I found out that a company is using my software without a licensing agreement. What should I do?

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