Intellectual Property

What to Consider When Signing a Licensing Agreement for Your Intellectual Property

Make sure, before allowing someone to license your intellectual property, that you have a protective agreement in place.

While most people recognize the term "intellectual property," they may not understand what exactly it includes. Intellectual property (IP) is essentially intangible property. Unlike tangible property, like a car or a piece of land, intellectual property includes art, music, poems, inventions, designs, processes, and logos.

As you can imagine, ownership of these sorts of intangible assets can be just as valuable as many tangible assets, if not more so. Consider, for example, the value of the Pepsi's logo, the Harry Potter copyright, or the various patents on Apple's iPhone. IP has become increasingly important to our economy, particularly given the rise of software and mobile technology.

If you are the owner of IP, there are two important ways to profit from it. First, you could utilize it yourself (for instance, manufacture a patented product or sell your original copyrighted photographs). Second, you could license the IP to another person or entity (perhaps license the right to manufacture your patented product or license your copyrighted photograph for use on someone else's website).

A license is essentially a contract that helps you control, manage, protect, and profit from your IP. What are some of the issues to consider in a licensing agreement?

Licenses and Your Rights

A license allows an IP 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. You can use a license to give someone permission to use your IP in a certain way for a certain time for a certain price.

Types of Intellectual Property

Before you begin licensing intellectual property, it is critical to understand the basic legal framework of IP rights in U.S. law. There are four basic types of IP that most businesses, inventors, and creators will encounter:

  • Copyrights: Copyrights protect original works of authorship fixed in any tangible expression form.
  • Patents: Patents protect original inventions.
  • Trademarks: Trademarks protect words, names or symbols identifying goods or services.
  • Trade Secrets: Trade secrets protect methods or systems, such as customer lists, sensitive marketing information, non-patented inventions, software, formulas and recipes, techniques, processes, and other knowledge.

Securing Your Rights

Intellectual property is a complex area of law, and a lawyer is often in the best position to help you protect and manage your rights. The U.S. Patent and Trademark Office (PTO) and the U.S. Copyright Office are also valuable sources of information about the process for registering your IP with the federal government.

Some IP protections, such as copyrights, are automatic in some situations but may be formally filed with the government. Other protections, such as patents and trademarks, are granted by the PTO and the application process can be rigorous and complex. And trade secrets are often not "filed" at all, but are nevertheless still protected by a combination of state and federal law.

Once you have a handle on your IP rights, you can begin to think about the shape and structure of your licensing agreement.

What Should Be Included in a Licensing Agreement?

A licensing agreement does not need to be long or complicated. Indeed, an agreement that is straightforward is more likely to be understood by both parties, and ultimately enforceable by courts.

You also need not start drafting a licensing agreement from scratch. You can easily find samples of such agreements online, though you should always run any draft by your attorney to ensure that they protect you for your specific situation.

License Scope

One of the first issues to consider is the license's scope. Do you want the licensee to have unrestricted use of your IP? Or can the licensee use your IP only in certain ways (such as for non-commercial purposes) for a limited amount of time (for instance, for one year)?

Licensing is assigning "limited use" rights for property. The rights given by the agreement need to be broad enough so licensees are interested in the deal, but narrow enough that you do not give permanent unrestricted control over your asset.

For example, imagine you took a beautiful photograph of the New York City skyline. Perhaps you would want to license it to a company that will use use the image on a billboard ad. But your license would probably want to restrict (i) edits the company could make to your photograph, (ii) the amount of time for which the image could be used, and (iii) the placement of your name somewhere on the photograph or website for credit.

Revenue From Your Product

Terms controlling revenue streams generated by licensed products are critical. Some license agreements include a one-time license fee, paid at purchase. Other arrangements may include recurring payments such as royalties or monthly lease payments. License agreements may also cover ongoing maintenance charges. Consider which of those arrangements makes most sense for your specific situation.

Other License Terms

Other common license agreement topics to cover include:

  • term (agreement length)
  • rights to modify the IP and combine the IP with other products (for instance, editing your photo or using your patent within another product)
  • prohibited uses of the IP
  • transfer and sub-license rights (can the licensee turn around and license your IP to someone else?)
  • rights to source code, if software is involved
  • acceptance, testing, and training procedures
  • warranties
  • limitations on the licensor's liability
  • support services (will you assist the licensee with using the product?)
  • nondisclosure of confidential information
  • indemnity for infringement
  • enforcement of remedies, and
  • contract termination rights (can you terminate the agreement unilaterally, or if not, on what terms can you do so?).

Licensing Agreement Enforcement

Federal laws provide 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 include the amount you lost because of infringement, or you could seek the profits the defendant gained by infringement.

Importance of Legal Guidance

Intellectual property is complex. Licensing of IP involves a tricky mix of legal and business issues. An attorney can provide invaluable help with drafting your agreement and enforcing it. Check out this Guide to Finding an Excellent Lawyer for tips on locating the right counselor.

Questions for Your Attorney

Here are some issues you might want to raise when meeting with a lawyer.

  • How can I limit a licensee's use of my copyright, trademark, or patent in the agreement?
  • Can you review my draft licensing agreement?
  • What words should I use in my licensing agreement so that I keep ultimate ownership rights after the period of the license concludes?
  • I found out that a company is using my software without a licensing agreement. What should I do?
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This article was verified by:
Barry Jay Reiss | June 12, 2015

New York,NY
10001-1738
(631) 261-4719 View Profile
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