Intellectual Property Licensing For The Layperson
Few lay persons are aware of the benefits associated with licensing intellectual property. Often an individual will have an idea and fail to take the necessary steps to protect and then license the intellectual property.
This brief article provides the layperson with helpful suggestions for protecting and licensing intellectual property.
II. Definition of Intellectual Property
Intellectual property may be any useful, new and nonobvious apparatus, process, article of manufacture, chemical composition, product design or biological plant. These forms of intellectual property are protected by the patent law. In addition, useful, new and nonobvious improvements made to existing apparatus, processes, articles of manufacture, chemical compositions, product designs and plants are also protected by the patent law. Patent law permits the owner of the patent to exclude all others from making, using, offering for sale, selling and importing what is patented.
Intellectual property may also be books, magazine articles, music and other works of authorship. These forms of intellectual property are protected by copyright law. Copyright law protects the owner of the copyrighted work with respect to unauthorized copying of the copyrighted work by others.
Furthermore, intellectual property may be a product name, product color, company logo, or other identifier of the source of a product or service. These forms of intellectual property are protected by trademark law. Trademark law protects the owner of the trademark with respect to unauthorized commercial use of the exact trademark, or a confusingly similar trademark, by others.
Yet another form of intellectual property pertains to trade secrets. A trade secret is any confidential formula, pattern, process, device, information, or compilation of information that is used in one business and that gives the business owner an advantage over competitors who do not know or use the trade secret. Trade secret law protects the owner of the trade secret with respect to theft of the trade secret.
Each of the above forms of intellectual property is licensable after it is appropriately protected.
III. Types Of Intellectual Property Assets
A patent creates a barrier to market entry by competitors. Therefore, a patent can serve as a useful tool to protect market share or create a dominant position in the marketplace because a patent acts as a monopoly. Also, a patent can be a useful tool for raising venture capital because the financial risk to the venture capitalist is reduced due to the market monopoly the patent provides. In addition, banks may be willing to lend credit using intellectual property as collateral. Therefore, a patent can be a valuable asset that could be attractive to a prospective licensor.
Copyright law protects a creator of an "original work of authorship from unauthorized copying of the original work of authorship. Examples of copyrightable works include books, magazine articles, newsletters, marketing materials, engineering drawings, music, pictures, Internet web pages, etc.
Like any intellectual property asset, the author of the copyrighted work can license his rights in the work. For example, the author of a musical composition can license a music producer to receive a portion of the revenue obtained by producing and marketing the musical composition.
Trademarks may be in the form of distinctive logos, packaging, color combinations, product designs, sounds and other indicia of the source of goods or services. Trademark rights prevent others from unlawfully using a mark that is the same or confusingly similar.
The owner of the trademark can license another to use the trademark. For example, the owner of a distinctive logo can license a manufacturer to use the logo on the manufactured products.
D. Trade Secrets:
Trade secrets are also referred to as confidential information. In this regard, trade secret law protects the owner of the trade secret with respect to theft of the trade secret. Trade secrets are not protected by patent, trademark or copyright law. Trade secrets are only protected by trade secret law. Trade secret protection lasts forever, as long as the information is kept secret.
Examples of trade secrets include customer lists, product pricing, marketing strategies, unpublished company profit and loss statements, manufacturing processes, recipes, an invention for which a patent application has not been filed, and chemical formulae.
The owner of the trade secret can license another to use the trade secret. For example, the owner of a secret formula for making a soft drink can license another to bottle and market the soft drink.
IV. Licensing Intellectual Property
Licensing intellectual property occurs when the owner of the intellectual grants another permission to exploit the intellectual property. Thus, licenses may be granted for patents, copyrights, trademarks and trade secrets.
In this regard, licenses come in three basic flavors as follows: (1) an exclusive license; (2) a sole exclusive license and (3) a nonexclusive license. An exclusive license allows the licensee (entity receiving the license) to be the only party entitled to exploit the intellectual property being licensed. A sole exclusive license allows both the licensee as well as the licensor (entity granting the license) to exploit the intellectual property. A nonexclusive license allows the licensor to grant licenses to more than one licensee.
There are several general questions one should ask himself before granting or taking a license. For example, should the license be restricted to a particular subject matter, particular use, or territory? Moreover, should the license be perpetual or only for a term of years? Also, what should be the royalty structure? In this regard, should there be a one-time up front fee, a royalty that is periodically payable, minimum periodic payments the licensee would have to make even if the licensee never sold products or services covered by the license, or a combination of these payment alternatives? In addition, does the licensor own clear title to the intellectual property that the licensor intends to license? Who should own improvements that the licensee makes to the intellectual property that is licensed? Further, in the case of patents, is there a patent owned by a third party that would be infringed if the licensee practiced the intellectual property covered by the license? These are but a few of the questions one should answer before granting or taking a license.
Why should the creator of the intellectual property consider either granting or taking a license? If one is considering granting a license, then the following specific factors should be considered: (1) is the intellectual property being used; (2) was the intellectual property developed for use in only one field but has applications in other fields; (3) does the creator of the intellectual property have sufficient resources and expertise to exploit the intellectual property; (4) would licensing be a way to market and distribute products or services in a foreign country where the licensor lacks a presence; and (5) other considerations?
If one is considering taking a licensee, then the following specific factors should be considered: (1) whether obtaining a license allows the licensee of the intellectual property to expand a product line without the risks and costs of a research and development effort; (2) will a license give one a product that is complementary to existing products (for example, a license to produce quick drying ink might be complementary to an existing product that is a ball-point pen); (3) will a license to one technology help one more efficiently run his business, such as a license to a computer software program that keeps track of accounts receivable; (4) will a license help a business maintain its competitive edge; (5) will a license avoid an infringement action, when it is not possible to work-around intellectual property that is owned by another; and (6) other considerations?
Licensing intellectual property can provide financial benefits, if one takes the necessary steps to protect and then license the intellectual property.
Finally, laws and regulations governing licensing of patents, copyrights, trademarks and trade secrets are complex. Although this article provides a useful summary, an intellectual property attorney should be consulted in any particular situation.
About the Author
Walter S. Stevens, PhD., is a registered patent attorney with the U.S. Patent and Trademark Office and practices intellectual property law in San Diego, California. He is the managing member of Premier IP Protection, LLC based in San Diego, California. If further information is desired, he can be reached at email@example.com. or Toll Free 1-888-654-3869.
The commentary contained in this article is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
Copyright 2016 Walter S. Stevens - All Rights Reserved