The rapid advances in artificial intelligence and other technology aspects have elevated the importance of securing, licensing and selling intellectual property rights and there are significant advantages in enhancing knowledge of the existing legal framework that supports such transactions.
The protection of intellectual property has several benefits to businesses. If an invention, such as a new product, is protected, the owner of the intellectual property rights (also known as IP rights) will become the only person with the right to use or reproduce it. Others cannot copy or reproduce what the owner has invented without his/her permission. When an invention is protected, the quality of the product is guaranteed and its origin is clear. This can be an advantage for the business, because customers may prefer to buy a product that has passed more restrictive checks (a controlled good). Owning a patent or a trademark can increase market value and make it easier for businesses to find investors or other funding opportunities.
In addition, businesses can earn money not only through direct use of IP rights but also indirectly through licensing contracts. This is when a business grants a licence to another company to use IP protected subject matters for a certain period of time. Owners of intellectual property (IP) have the right to grant rights of use to another legal person through the grant of a license to use IP rights. Owners of IP may also wish to generate revenue by selling IP, through assigning or transferring their IP rights.
Confidentiality of an IP license or IP assignment
Before negotiating a licensing or an assignment agreement In certain cases, it may be useful to keep some information confidential, such as the piece of IP concerned - for example, technology for which no patent application has been filed so far or another trade secret, the licensing or the assignment agreement itself and especially its financial aspects. For this purpose, it is important to conclude a non-disclosure agreement with the potential licensee or assignee.
Potential licensees or buyers of IP can gather and assess information about IP by submitting it to an IP due diligence investigation. A thorough examination of all aspects concerning IP is important. Due diligence includes searches of the relevant registers such as Registers of Trademarks, Trade Names or Patents to verify the ownership and due registration of the relevant IP rights. Additionally, due diligence requires detailed inquiries as to the status of IP rights, asking the IP owner for relevant certificates as well as review of any relevant agreements to see their terms and to confirm whether IP rights are transferable.
Licensing out IP
The holder of intellectual property can negotiate a licensing agreement with another entity (licensee) that gives permission for the license to use the intellectual property rights. The owner may opt to have a single licensee (also known as exclusive licence) or several licensees. If offering multiple licences, these can be open or limited in scope to particular industries or geographical areas (such as franchising). In exchange, the owner (also known as the licensor) gets paid for giving permission, typically in the form of "royalties" defined as a percentage of the sales. The owner can also set the limits for the use of the IP (geographical scope, field of use, etc.).
By licensing out IP, the owner/licensor keeps his/her rights over the IP, which means that there is no transfer of ownership. The owner/licensor remains responsible for the maintenance (and, the case being, prosecution) of the IP rights concerned. Although licensing agreements need to be prepared with the assistance of lawyers and IP professionals, there are some key IP clauses to be negotiated and included before signing the agreement.
The core content of a licensing agreement
In order to put together a licensing agreement, the following issues are important:
- to put the agreement in writing;
- to clarify which IP rights exactly are concerned;
- to communicate the starting date, duration, and termination of the contract;
- to negotiate and mention in the agreement the financial compensation to be paid by the licensee to the licensor (e.g. possible lump sum, royalties, etc.);
- to state the exclusivity or non-exclusivity of the license agreement;
- to mention all the conditions for the use of the IP;
- to define in which territories the licensee can use the IP.
In some EU countries, you must register the licence agreement, usually at the national IP office. In Cyprus, a copy of the trademark licence agreement must be submitted to the Registrar of Companies to be registered in the Register of Trademarks. In case of termination or amendment of the licence agreement, the parties must immediately inform the Registrar to update the Register of Trademarks accordingly. Additionally, industrial design licence agreements should be registered in the Register of Designs and should be published in the Official Gazette of the Republic of Cyprus. Patent and copyright licences are not bound by any formality or registration requirement. For further information, check the factsheet on licence agreements by the European IPR Helpdesk.
Assignment of IP rights
The owner of IP rights can transfer the ownership of his/her intellectual property rights (patent, trade mark, copyright, etc.) by assigning/transferring the IP. With an IP assignment, the owner transfers all rights he/she initially possessed for the piece of intellectual property concerned. When the IP assignment is finalised, the owner will have no further responsibility for that IP (such as paying renewal fees), nor will he/she benefit from any possible commercial success of the product or service concerned. In addition, unless this is explicitly allowed in the assignment contract, the owner will not be able to further use the IP concerned (invention, trademark, etc.), as long as it is protected.
The core content of an IP assignment
In order to put together an IP assignment agreement, the following issues are important:
- to put the agreement in writing;
- to clearly specify and identify the IP that is transferred, for example indicating the registration number (if it is a registered IP);
- to negotiate and mention in the agreement the financial compensation to be paid by the assignee to the owner;
- to discuss possible warranties for specific details and include them in the agreement;
- to specify which law should be used to interpret the contract and the jurisdiction for any possible dispute settlement, whether an arbitration panel or a local court.
- to make sure that the assignment is registered with the relevant IP office if it is a legal requirement. In Cyprus, registration of assignment is necessary for transferring trademarks, industrial designs.
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.