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 his or her intellectual property rights valued, prior to entering into a IP license negotiation, to ensure 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 is always the owner of the licensed IP, and one license can cover a bundle of IP rights including patents and design rights, related know-how, and a trademark. The agreement between the two parties can allow the licensor to share some risk, for example by tapping into the licensee’s productive capacity and relevant local expertise and so in simple terms, sharing the risk and profits through the license agreement.
What to consider when licensing Intellectual Property?
There are many factors to be considered including:
- Exclusivity (which usually comes with an upfront fee)
- Use (in which market)
- Territory
- Enforcement of intellectual property rights and ongoing payment of IP maintenance and protection fees
- Time period (sometimes linked to the expiration of a patent or the useful life of the IP assets)
- Background IP (brought to the licensing partnership) & Foreground IP (usually created as a result of licensing partnership)
- Rights to Future Developments
- Any services or support provided by licensor along with assets
- Rights to assign, sublicense or terminate the license
There are many reasons a company will consider IP licensing, beyond the commercial growth or business expansion opportunities noted above– for example, it may be that the company has an intellectual property it considers non-core and so is considering licensing it out to another party who sees an opportunity and is interested in exploiting the particular technology.
The benefits and attractions of an Intellectual Property licensing arrangement include:
- Providing easier access for your products or services into a new market or geographical territory
- Allowing the commercial risks of entering the new market to be shared
- creating additional revenue streams
- increasing market share
- gaining access to local expertise in the target market
- broadening your competitive advantage
- increasing collaboration opportunities; and
- the opportunity to minimize capital investment and risk when entering a new market.
The type of Intellectual Property assets which can be the subject of an IP licensing agreement can include:
- Trademarks to “brand” 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 know-how
We are often asked for advice and support in intellectual property license negotiations. In particular, we are asked to provide:
- A intellectual property valuation with comparable royalty rate analysis, to guide the negotiation of license fees and royalties
- Advice on specific license terms to include/exclude, which are reflective of the circumstances, the required 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 and influence choosing licensing partners
- 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 at info@metispartners.com. Through the experts at Metis Partners you can learn about Intellectual Property strategies in addition to formal intellectual properties such as copyrights, designs, and trademarks. While you’re here, feel free to check out our intellectual property sold and our intellectual property for sale sections too!
