of intellectual property occurs when the
owner of the intellectual property grants
another permission to infringe the intellectual
property. Thus, licenses may be granted
for patents, copyrights, trademarks and
In this regard, licenses can be three
basic types as follows:
- exclusive licenses
- "sole" exclusive licenses
- nonexclusive licenses.
An exclusive license allows a single licensee
(entity taking the license) to be the
only party entitled to exploit the intellectual
property being licensed by the licensor
(entity granting the license). A "sole"
exclusive license allows both the single
licensee as well as the licensor to exploit
the intellectual property. A nonexclusive
license allows the licensor to grant licenses
to mroe than one licensee.
Questions to think
There are several general questions one
should ask before granting or taking a license.
- Should the license be restricted to
a particular subject matter, particular
use, or geographic territory?
- Should the license be perpetual or only
for a specified term?
- What should be the royalty structure?
- Should there be a one-time up front
fee, a royalty that is periodically payable
and based on sales or another measure
(for example, number of units sold)?
- Should there be minimum annual payments
the licensee would have to make even if
the licensee never sells products or services
covered by the license?
- Should there be a combination of these
- Does the licensor own clear title to
the intellectual property that the licensor
intends to license?
- Is the licensor actually offering a
sublicense and does the licensor have
permission from the original licensor
to offer a sublicense?
- Who should own improvements that the
licensee makes to the intellectual property
that is licensed?
- In the case of patents, is there a patent
owned by a third party that would be infringed
when the licensee practices the intellectual
property covered by the license?
These are but a few of the general questions
one should consider before granting or
taking a license. If one is contemplating
granting a license, then the following
specific questions also should be considered:
- Is the intellectual property being
used in the business?
- Was the intellectual property developed
for use in one field but has applications
in other fields?
- Are there sufficient resources and expertise
in-house to exploit the intellectual property?
- Would licensing be a way to market and
distribute products or services in a foreign
country where the business owner lacks
- Other considerations?
If one is contemplating taking a licensee,
then the following specific questions should
- Will obtaining a license allow
the business to expand its product line
without the risks and costs of an in-house
research and development effort
- Will a license give the business a product
that is complementary to the business'
existing products (for example, a license
to produce quick drying ink might be complementary
to an existing product that is a ball-point
- Will a license to one technology help
the business owner more efficiently run
his business in another technology, such
as a license to computer software that
keeps track of accounts receivable for
a shoe manufacturer?
- Will a license help the business maintain
its competitive edge?
- Will a license avoid an infringement
action, when it is not possible to work-around
intellectual property (e.g., a patent)
that is owned by another?
- Other considerations?
An excellent paper describing the advantages
and disadvantages of licensing can be found
The paper contained at this website is titled
"Valuation and Exploitation of Intellectual
Property", published by the Organisation
de Coopération et de Développement Economiques
and Organisation for Economic Co-operation
and Development (2006).