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Intellectual Property Licensing

Licensing 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 trade secrets.

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 about
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 payment alternatives?
  • 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 a presence?
  • Other considerations?

If one is contemplating taking a licensee, then the following specific questions should be considered:

  • 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 pen)?
  • 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 here. 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).

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