An IP license agreement may be one of your business’s most important commercial documents.
An IP license is an agreement between the owner of the IP (“licensor”) and another party (“licensee”) in which owner of the IP permits the licensee to commercialise its trademark, without giving up its own title of ownership.
Licensing a third party to use your IP is a common way to commercialise patent and trademark rights. It can encourage the exchange of resources and information and provide access to manufacturing facilities and distribution networks necessary to gain entry to domestic and foreign markets.
A correctly drafted license arrangement is key to maintaining strong IP rights. This arrangement may be a stand-alone agreement or part of a larger commercial arrangement. Some of the things your IP license agreement will cover are:
- Royalties. How will the licence royalties be calculated? This is usually a percentage of the product’s sale price. There is no standard “royalty” amount, and a lot of different factors will go into calculating the correct royalty rate.
- Exclusivity. Is the licence exclusive or non-exclusive? An exclusive license is one where the right to commercialise the IP is only given to one person or company. This is usually limited to a territory, product or timeframe. While an exclusive license gives the licensee a lot of incentive to maximise revenue from your IP, you will usually need to include commercial milestones to avoid being bound to an under-performing licensee.
- Termination. A license agreement is usually for a fixed term and sets out the conditions under which the license may be renewed or terminated.
- Enforcement Action. A license agreement will also specify if the licensee has the right to take legal action in respect of infringements and the rules for the conduct of those proceedings.