India: The Dos And Don'ts Of Licensing Intellectual Property In India

Last Updated: 29 April 2019
Article by Obhan & Associates
  1. What is licensing of intellectual property ("IP")? 

An owner of IP can grant another person the right or permission to make, use or sell property or items embodying or covered by this IP by means of a contractual license. A license may apply to any type of IP – trademark, patent, copyright, design and/or know-how. Under the license, the licensor maintains title in the IP and the licensee is authorized to make use of the IP only in accordance with the terms and conditions of the license.

  1. What is a licensing agreement?

A license agreement is a document, executed between two or more parties, evidencing the terms and conditions of such contractual license.

  1. Does a license agreement have to be in writing?

Once an entity/individual has taken the decision to licence its IP, it is imperative that the terms of the licence be captured in writing and explicitly agreed between the parties. Provisions of several acts governing different types of IP such as trademarks, copyrights, patents and design state that the license agreement should be in writing. Know-How as an IP has no specific legislation and though not required to be in writing by statute, it is recommended that license of any know-how be in writing as well to avoid ambiguity.

  1. A license agreement should be in writing with the relevant terms clearly defined. But if the parties execute a term sheet, would that suffice as a valid license agreement?

For a valid license, not only must the license terms be set out in writing but should also be in the form of a binding definitive document. A non-binding term sheet would not constitute a license agreement as held by the Delhi High Court in 2009.

  1. What terms are essential to a license agreement and should form an integral part of any license agreement? 
  • Definition of Licensed Property
  • Territory
  • Exclusivity
  • Royalty
  • Right to grant sub-licenses
  • Revocability
  1. What is an exclusive license and a non-exclusive license?

An exclusive license excludes the use of the licensed rights for anyone but the licensee. It must be clear whether that is meant to exclude the licensor itself from making use of the intellectual property. A non-exclusive license can be granted as often by the licensor to as many licensees as desired. Most commercial software licensed today is licensed on a non-exclusive basis.

  1. Difference between exclusive license of IP and assignment of IP? 

There are numerous instances where the licensor has granted an exclusive license and the licensee has claimed that the same is an assignment of the IP. An exclusive license is not an assignment, when you license IP, you are granting the licensee permission to use your IP in a particular way while still retaining an interest in the IP being licensed. When assigning IP to another, there is a transfer ownership from the assignor to the assignee. This is a permanent arrangement, and you cease to hold an interest in the IP once it is assigned. The terms of the license must explicitly state it is a license (whether exclusive or non-exclusive) and define the mutual obligations. Most importantly, the clause on royalty payment should be drafted in a manner that does not give rise to implications that any downright payment is towards assignment of the IP.

  1. What is royalty?

One of the goals of licencing is to enable the proprietor of IP to receive quantifiable sums of money based on a licensee's use of such licensed IP. The royalty is the consideration amount to be provided to the owner/licensor of the IP for the grant of the license. The consideration may be a lump sum payment or a continuous periodic fee payment, also known as royalties or a combination of lump sum fee and periodic payments.

  1. How is royalty determined?

The parties to a license are free to select the basis of royalty calculation that meets their commercial requirements. The most common method is the expression of the royalty as percentage revenue, other methods include:

  • A single up-front payment;
  • A pre- determined amount that is paid periodically;
  • A charge based on units of manufacture or sales;
  • On early stage technology, royalties can be based on development costs.
  1. Who owns any improvements, enhancements and modifications to the licensed IP? 

A person may create and design an improvement of an existing technology or a feature that enhances the use or functionality of the technology. The new invention may come about as a result of an idea that relates to the use of the licensed IP, or it may actually be the result of modification of that IP in order to produce any enhancement. An "improvement" in the context of IP licenses, usually means a development within the field of the licensed technology that enhances the usability, functionality, efficiency, performance or other characteristic of the original IP. A license agreement must spell out what constitutes an improvement and who owns such improvement and all IP that vests in the same. The license agreement also needs to provide for ownership of IP if there is any joint development.

  1. Is stamp duty payable on license agreements? 

Stamp duty refers to a tax on a transaction which is paid to the government and the tax is levied on the instrument recording the transaction. Stamp duty is payable on license agreements and the rate of stamp duty payable varies in each State. Prior to the execution of a license agreement, it is important to understand if the benefit of executing the license agreement in a particular state and availing lower stamp duty rates can be obtained.

  1. What are the consequences of not paying stamp duty?

Under the Indian Stamp Act, 1899 if adequate stamp duty has not been paid on a document, such document cannot be admitted in evidence for any purpose nor can it be acted upon, registered or authenticated. 

  1. Is registration of a licensing agreement mandatory? 

The acts governing different types of IP include provisions regarding the requirement of registration of a license agreement. Where the statute mandates registration of the license agreement, both the licensor and licensee must ensure that the same is registered within the prescribed time period.

  • Patents – The Patents Act, 1970 states that a license agreement must be registered and that a licensee should apply in writing to the Controller of Patents for registration of his title.
  • Trademark – The Trade Marks Act, 1999 does not make registration of a license agreement mandatory, however it does provide for the concept of 'registered user'. Provisions have been set forth to register any person other than the registered proprietor as the registered user for the use of the mark in commerce. The act provides that registered user can file infringement proceedings in his own name.
  • Copyright – The Copyright Act, 1957 does not make registration of the license agreement mandatory.
  • Design – The Designs Act, 2000 requires that an application for registration of title under a license agreement is filed with the Controller within six months from the execution of the license agreement. A license agreement in respect of which no entry has been made in the register cannot not be admitted in evidence in any court in proof of the title to copyright in a design or to any interest therein, unless otherwise directed by the court.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Khurana and Khurana
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Khurana and Khurana
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions