The Complete Guide to Intellectual Property Licensing and Its Benefits: - www.deekpay.com

An intellectual property licence is an agreement between an intellectual property owner and a third party that allows the third party to use a portion of the intellectual property for a limited period of time, in exchange for which the intellectual property owner receives a fee or royalty. In this agreement, the intellectual property owner is called the licensor and the third party is called the licensee.

Let's learn more about this from Raddhika Singh, who is the founder and managing partner of Aletheiaa Legal. Aletheiaa Legal is a law firm specialising in Intellectual Property, Media & Entertainment, Commercial Contracts and Information Technology law and has advised over 300 startups.

Here is what we will cover in our discussion:

1. What is intellectual property?

2. Different types of intellectual property rights

3. How can intellectual property be commercialised?

4. How can you generate revenue by licensing your intellectual property?

5. Important clauses in intellectual property licence agreements

6. Advantages of intellectual property licensing

What is intellectual property?

Intellectual property refers to the results of intellectual endeavours that are used commercially. Examples include inventions, literary and artistic works, designs, names and images.

Different types of intellectual property rights

There are four main types of intellectual property:

logo

Brands register their products, services, company names, businesses, slogans, taglines or domain names as intellectual property.

copyright

Any business that creates original literary, dramatic, artistic, musical works, sound recordings and films uses copyright as intellectual property.

devise

Manufacturing companies come up with their own innovative designs and have unique aesthetic features in their products, and these unique products can be used as design intellectual property.

patents

Novel and innovative ideas with innovative steps can be patented and used as intellectual property.

How do you commercialise intellectual property?

We commercialise IP in three ways:

You keep it for personal use. You commercialise it and earn revenue by leasing it to third parties. The third party pays you royalties and the ownership of the IP remains with you (the creator of the IP). You can assign it to a third party or sell it to a third party.

How can you generate income by licensing your intellectual property?

The underlying licence allows a third party to use your brand information and pay you royalties for doing so. The nuances of each IP agreement will vary depending on the understanding of both parties. Below are the different ways in which intellectual property can be licensed:

logo

There are three ways in which you can generate income from your trade mark:

Trademark licences are granted from the parent company to the subsidiary:

If a Singapore-based company needs to use the same product in India, then its parent company needs to licence the brand trademark to the Indian company. The parent company and its subsidiary enter into a licence agreement containing all the important terms.

Trademark licences are granted by the franchisor to the franchisee:

This is the most famous form of trademark licence. There are many restaurants and they all look the same. Famous restaurant chains or salons licence the right to use their brand to entities that want to use it. They licence it to third parties. They allow third parties to use their brand name under different franchise models. There are some conditions regarding this and there are certain franchise fees and royalties that need to be paid to the franchisor.

Trademark licences can promote sponsorship:

A brand sponsors an event and allows the event organiser to use its logo. Two brands can enter into a co-branding agreement. They allow each other to use the brand and have a licence agreement between them.

copyright

You can earn income from copyright in two ways:

Copyright permission is granted through the author's film contract and book publishing contract:

Some authors write a book and enter into an agreement with a publisher to publish their book. They licence the right to publish the book to the publisher and retain ownership of it.

The copyright licence is in the software:

One of the most common forms of copyright. The company that develops the software generates revenue by giving users the right to download the software/application. Users pay a royalty or fee in the form of a mutual agreement.

devise

Design companies design aesthetically pleasing products. They design and licence it to the manufacturer. The manufacturer adopts the design and designs it themselves. For each product they produce based on the design created by the designer, they pay the designer a certain amount of revenue.

patents

Entrepreneurs patent their brilliant ideas. They find a manufacturer and allow them to produce the design. The manufacturer pays the designer a royalty per piece.

Important clauses in intellectual property licence agreements

Here are some things to keep in mind if you are licensing your intellectual property to a third party:

Nature of intellectual property rights

Determine the nature of the intellectual property, such as software code, literary works or trade names. For any technology startup, there may be different intellectual property rights. If you are licensing software functionality, you need to give the nature of the patentable intellectual property. This makes the nature of the intellectual property important.

Ownership of intellectual property

The licensor should indicate that they are the owner of the licensed intellectual property. This is important for the licensee to obtain an indication of ownership. The absence of such an indication of ownership may lead to legal disputes. The agreement should make it clear that ownership is vested in the licensor in order to avoid any confusion.

Scope of licence

The scope of the licence can be exclusive and non-exclusive. The owner of the intellectual property has the right to licence the intellectual property to one or more persons. If more than one customer needs to use your intellectual property, the licence should be non-exclusive. If you give exclusive rights to a customer, only that customer has the right to use the IP, even to the exclusion of the licensor's own use.

Licence duration

The duration of the intellectual property rights is an important clause. You need to mention what happens when the term expires. At the end of the term, the IP must be returned to the owner.

geography

The geographical limits of the licence are very important. This may include a specific state, country, or globally. This is important for the franchise agreement. Franchisees need to know the territories where they can use the product. The licensor must state this.

Consideration (royalties)

Licensees pay royalties in different ways. Here are some details:

One-time advance

The licensee pays a one-time advance payment to the licensor. The licensor does not track the number of sales that occur. Periodic payment of a predetermined amount

The Franchisee pays the Franchisor a monthly royalty on the Net Revenue. This is a predetermined percentage of the net income. This is common in copyright and design licences. Amounts paid periodically based on strings attached

This type of agreement allows you to use the intellectual property for free and pay royalties when a large client signs on. This depends on the underlying negotiations between the parties.

Permitted use of intellectual property

The licence agreement must refer to the use of intellectual property and any restrictions. Restrictions on reverse engineering or creating similar products may exist.

indemnify

The consequences of intellectual property abuse or breach of agreement need to be clearly stated.

Advantages of Intellectual Property Licensing

Here are the advantages of intellectual property licensing that you must know:

Generates passive income for IP owners without any significant additional costs Creates new business opportunities for both licensors and licensees Enables companies to enter new markets or industries and expand their business Provides better marketing potential