What is an IP License and when might you consider licensing Intellectual Property (IP)?

An intellectual property licensing agreement typically occurs between an IP rights owner (“licensor”) and someone who is authorized to use the rights (“licensee”) in exchange for monetary value in the form of a fee or a royalty, or both.

Typically, a licensor will have had the intellectual property valued, prior to entering into a IP license negotiation. This ensures the terms of the license reflect a sharing of the risk and rewards associated with exploiting the IP rights in the designated territory. The two parties agree on the terms and conditions via negotiation, with the outcome dependent upon the bargaining power of each side and the value of the commercial opportunity and profits that the IP unlocks.

The licensor remains the owner of the licensed IP, and one license can cover a bundle of IP rights including eg patentsand design rights, related know-how, and trademarks. The agreement between the two parties can allow the licensor to share risk and reward for example, if moving into a new market or territory the license agreement can allow the licensee the rights to use the IP while the licensor can tap into the licensee’s productive capacity and relevant local expertise. The agreement, therefore, enabling the two parties to share risk and reward (profits).

What to consider when licensing Intellectual Property?

There are many factors to be considered including:

  • Exclusivity: gaining exclusive rights to use the IP in a market or territory usually involves payment of an upfront fee.
  • Use: the market in which the IP will be used and commercialized.
  • Territory: the geographic area in which the IP can be exploited will be defined.
  • The license will identify which party is responsible for enforcement of IP rights and ongoing payment of IP maintenance and protection fees.
  • Time period: the agreement may specify a fixed term for the use of the IP, which could be linked to the expiration of a patent or the known useful life of the IP assets.
  • The agreement should specify the treatment and ownership of Background IP (brought to the licensing partnership) & Foreground IP (usually created as a result of licensing partnership).
  • The agreement should specify the treatment of IP rights resulting from future developments.
  • The license will likely outline any services or support provided by licensor relating to the licensed IP assets.
  • The license should specify any limitations or restrictions on the rights to assign, sublicense or terminate the license.

IP licensing is also an effective monetization strategy for IP that a company owns or has developed but now considers it to be non-core.  

The benefits and attractions of an Intellectual Property licensing arrangement include:

  • easier launch of your products/services in a new market or geographical territory by partnering with a local operator via a license.
  • the opportunity to minimize capital investment and risk when entering a new market.
  • sharing commercial risks of entering a new market.
  • creating additional revenue streams eg if the license covers on-core IP, or is for use in a market or territory that the licensor doesn’t operate in.
  • increasing market share, which in turn increases the value of the IP.
  • gaining access to local expertise in the target market.
  • broadening your competitive advantage.
  • increasing collaboration opportunities.

The type of Intellectual Property assets which can be the subject of an IP licensing agreement can include:

  • Trademarks[LR1]  to “branded” products and services
  • Patents to allow the manufacture or sales of technology (goods and processes)
  • Registered product designs
  • Copyright for literature or artistic work; and
  • Confidential information or documented know-how

We are often asked for advice and support in appraising intellectual property value to support IP license negotiations.  In particular, we are asked to provide:

  • advice on specific license terms to include/exclude, which are reflective of the business objectives and opportunities afforded by the licensed IP rights.
  • advice on how to structure and tactically execute a licensing transaction.
  • insights into markets to guide the identification of suitable licensing partners.
  • an intellectual property valuation with comparable royalty rate analysis, to guide the negotiation of license fees and royalties.
  • support to business owners and their attorneys drafting license agreements including those between connected parties which may be subject to transfer pricing rules.

To find out how we can help you in licensing intellectual property, contact us or email us at info@metispartners.com. IP licensing can be an effective part of an IP Strategy, read some of our insights and articles on developing an IP strategy.  A valuation of intellectual property that is to be licensed can be used to determine royalty rates that are commercially reasonable; read how our client used a patent valuation to support their licensing negotiations.

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