Canada: Intellectual Property Licensing: A Win-Win Agreement

Last Updated: September 13 2017
Article by David Lotimer

There are several benefits associated with protecting your valuable intellectual property ('IP') through registration. Owners often view registration of their patents, trademarks, copyright and other IP as a way to prevent third parties from using their proprietary idea, brand name or computer code. This is a valid consideration; however it is not the only benefit to an IP owner.

Licensing IP can be a very valuable additional income source to a business, and can be the conduit by which lucrative partnerships are created.

The World Intellectual Property Organization ('WIPO') categorises a licensing agreement as "a partnership between an intellectual property rights owner (licensor) and another party who is authorized to use such rights (licensee) in exchange for an agreed payment (fee or royalty)."1 In this way, a licensor is able to obtain monetary gain from his or her IP by providing permission to a licensee to use that IP. The specifics of this permission can be particular to suit the needs of the parties.

Some factors to consider include:

Exclusivity – a license to use IP may be exclusive to one licensee. Exclusivity is often viewed favourably by a licensee as it provides surety that other competitors will not be able to use the IP for their own business purposes. Alternatively, the license agreement may stipulate that the license to use the IP is non-exclusive. This may be favourable to the licensor as it provides them with an opportunity to enter into several different licensing relationships using the same IP, potentially deriving multiple income sources for use of the same technology.

Jurisdiction/Territory – a licensing agreement can be jurisdictionally specific, in other words, you may select the specific territory, region, area or country in which the license will be valid. Some companies elect to negotiate a worldwide license allowing the licensee more freedom to use the IP in the jurisdiction of their choice. Others limit the IP use to a specific country in order to prevent the licensee from entering into their own market.

Transferability/Sublicensing – it is possible for a licensor to provide a licensee with the ability to sublicense the IP themselves. The licensor may require that such sublicensing be approved, and structured such that sublicense fees will be paid to the IP owner. The licensor may also elect to provide a non-transferable license, which allows the IP owner to keep complete control of which parties are able to legitimately use the IP.

Term – the term of the licensing agreement can be a defined length, renewable, based upon other conditions (such as licensing fees, production targets, licensor election, etc.), or perpetual. A conditional term can act to motivate a licensee to achieve certain business targets that ultimately provide financial benefit to both the licensee and licensor.

Fees – license fees come in many forms including upfront payments, recurring annual or monthly fees, royalty based, or a combination of these options. It is possible to create a license fee payment structure that mitigates risk and rewards strong performance, or penalizes poor performance. A fee structure (like term structure) can act to motivate a licensee towards success in their own business.

Field of Use –the rights granted to use the IP may be limited to a specifically defined field. In this way the licensee is only able to use the IP for a particular commercial purpose and the licensor will maintain the right to directly exploit or license the same IP in a different field of use.2

Type of Licensed IP – the type of IP licensed will also impact how the license agreement is developed. The permitted use and control of a patented technology can be significantly different to the permitted use and control of a trademark, and the obligations on each of the parties to the agreement need to reflect the particular licensed IP.

Ownership of Licensed IP Developments – once a licensee is able to use a licensor's IP, it is important to consider how developments and improvements to the licensed IP will be controlled, particularly when it comes to ownership. It is possible to impose conditions upon the license that require all developments of the licensed IP to be owned jointly by both parties to ensure the spoils of newly created IP is realized equally.

The benefits of IP licensing are several and apply to all parties involved. A licensor may be able to form partnerships to expand the reach of their own business, or may secure an additional income stream. A licensee may expand their business by utilizing technology they were not previously able to use. There are many other options to further address the factors discussed above, and the specifics can be manipulated to better suit each particular licensing relationship.

When developing an IP License Agreement, consider consulting a trained IP specialist with experience negotiating and formulating these agreements. With his or her help, it is likely both you as an IP owner and the licensee of your IP will find yourselves part of a win-win agreement.

Footnotes

1'Licensing of Intellectual Property Rights; a Vital Component of the Business Strategy of Your SME', World Intellectual Property Organization, http://www.wipo.int/sme/en/ip_business/licensing/licensing.htm.

2'Fact Sheet – Commercialising Intellectual Property: License Agreements', European IPR Helpdesk, www.iprhelpdesk.eu, November 2015.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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