Licensing intellectual property (IP) can help businesses grow, generate revenue and expand their market. It allows the licensor, or the owner of the IP, to cut production and distribution costs. It allows the licensee, or the party receiving permission to use the IP, access to proven products. This saves them the costs of research and development and allows them to enter new markets easily. However, licensing also comes with risks, especially if the licensing agreement falls short of protecting the key asset.
The licensing agreement outlines the actions the licensor and licensee should take regarding the IP. IP can take different forms, such as patents, copyrights and trademarks. The agreement clarifies the legal ramifications of infringing on the licensor’s rights over their original work or inventions.
However, drawing up an agreement with the wrong party or signing one in which either party is at a significant disadvantage can harm your business. Business owners must ensure the agreement covers all necessary bases to avoid future legal and financial challenges.
Licensing agreement provisions
A licensing agreement must lay out guidelines, rules, and stipulations for using an IP. Factors that it must address include:
- Ownership of the IP and any derivatives: Clarifies ownership rights for the IP and works based on it, such as translations, adaptations or other modified versions
- Contract period: Specifies the period of the licensee’s use
- Limits of use: Defines who may use the licensed IP, in what manner, where they can use it and whether there’s exclusive use
- Decompiling restrictions: Forbids software reverse engineering
- Prohibited uses: Lists unpermitted usage like unauthorized distribution, unauthorized access and specific industry restrictions
- Sublicensing ability: Allows or prohibits a party from granting some or all of their licensing rights to a third party
- Software warranties: Identifies the software’s performance and what the licensor promises it will or will not do
- Indemnities: Obligates a party to compensate for damages arising from IP infringement
- Costs: Stipulates the upfront licensing fee, recurring fees and royalties paid to the licensor
- End of agreement and dispute resolution: States what happens to the licensee’s ability to use the IP after agreement termination and dispute resolution processes to undergo during conflict
Monetizing your IP shouldn’t come at the expense of its value and business relationships. Drafting and appraising a licensing agreement to ensure fairness and accountability for both parties is necessary to protect your rights. It diminishes the chances of potential lawsuits and harm against your IP.