The Basics of Licensing
Overview
In the digital age, Intellectual Property (IP) is often a company’s most valuable asset. Understanding how to commercialize your IP can help uncover new potential revenue streams. The obvious way to gain value from Intellectual Property rights is by using them (i.e. using an invention you have created and patented within your business to increase output). Using IP rights often requires extensive efforts and investment. If your company is not in a position to take full advantage of your IP rights, there are still many other methods of monetizing these assets. One of the most prominent alternative methods of commercializing your IP rights is through licensing.
Licensing
Licensing is one of the most common ways that a company can take advantage of its IP assets or even the IP assets of another in order to more efficiently make use of their own. Licensing occurs when one party (the licensor) gives permission to another party (the licensee) to use the first party’s IP rights with respect to a particular IP asset. Usually, the licensor is paid a licensing fee (covering the cost of negotiating the license and other related fees) as well as royalties consistent with a royalty fee schedule negotiated as part of the licensing agreement.
Licenses are NOT a transfer of IP rights; ownership remains with the licensor. Licenses are simply a grant of permission to use these rights under a set of conditions laid out in a licensing agreement.
First, you should take inventory of your IP assets, ensure they meet the requirements for federal/state protection, and prepare a rough valuation of each of your respective assets.
Then, you should determine what form of licensing could prove most advantageous to your company.
There are two different scenarios that take place with respect to IP licensing:
“Out-licensing"- Giving another company permission to use your IP.
Example: Phone Charger Manufacturing Company A licenses use of Company A's patented Wireless Charging invention to Mobile Phone Company B for use within Company B’s Mobile Phones for a designated period of time and within a predetermined scope.
Here, Company A is out-licensing their invention to Company B.
“In-licensing”- Getting permission to use another company’s IP within your business.
Example: Motion Picture Producing Company X licenses the use of Company Z’s novel in Company X’s production of a film based on Company Z’s novel.
Here, Company X is in-licensing Company Z’s novel for use within Company X.
In determining whether to in-license or out-license consider the balance between what value your IP could bring to another company vs. what resources you would need to fully develop and use your IP yourself.
Next, once you have determined whether to in-license or out-license, you should draft a term sheet. In the case of out-licensing, a term sheet will detail the conditions under which you are willing to license your technology (IP) to another company. In the case of In-licensing you will likely be met with a term sheet drafted by the owner of the IP asset you are trying to license, but keep in mind what terms would make sense for you to get the most out of an in-licensing arrangement.
Some of the important terms of a licensing agreement are exclusivity, geographic scope, term of use, field of use, fees/royalties, termination, and the permissibility of sublicensing.
See Licensing Agreement Terms: Fast Facts for more information.
Finally, a licensor and potential licensee should consult with attorneys in drafting and signing a binding licensing agreement. It is important to ensure that the terms of a licensing agreement do have anticompetitive effects that could render the agreement void. It is also important to ensure that a potential licensing agreement does not conflict with any existing licenses.
To talk to an attorney at The Long Law Firm about your IP needs, complete an intake form to set up a free consultation at https://long.law/intake