Are You Using the Right Type of Licensing Agreement?

Just like in real estate, there are different types of licensing agreements for different types of intellectual property.  Use the right agreement and your partnership runs smoothly, but if you use the wrong one, you can wind up losing more than just your royalties.

Licensing agreements create the partnership. It specifies how the partners get in, what each partner agrees to do, and how you get out. The most common types of licensing agreements include technology (patents), trademarks (merchandise), copyright and trade secrets (know-how). Sometimes these agreements include more than one type of IP. For example, a license for patent rights and manufacturing know-how is often called a “patent and know-how license agreement.”

While some parts of these agreements are similar, there are significant and important differences. Here’s a quick summary of these licensing agreements and some of the key differences between them:

Patent License

Your patents are legal rights that only prohibit others from using the parts of your technology covered by the patent claims. A patent license allows your licensing partner to make, use and sell something based on your patent in return for paying you royalties (as well as not getting sued for infringement).

A patent license is a performance-based agreement and it’s very specific about milestone benchmarks and timelines, such as IP development and royalty payments. If they are not met, you have the right to end (terminate) the agreement.

The common forms of patent licenses include exclusive, non-exclusive, and cross-licenses. An exclusive patent license is more valuable to the licensee than a non-exclusive license. For example, a new engine-related invention is licensed exclusively to different manufacturers in the airplane, motorcycle, and boat industries. Or it could be licensed non-exclusively to different automobile manufacturers. It can also be used to acquire rights to use someone else’s patent through a cross-licensing deal.

In many cases, a patent license also includes trade secrets and know-how, such as manufacturing process, which can increase the value of the licensing deal.

Trademark License

A trademark license focuses on control over the type and quality of the licensed products or services. It protects the reputation and quality of the trademark or brand. It allows the licensee to use the brand or trademark to sell its products or services.

The biggest difference between a trademark and patent or copyright license is the degree of control you must exercise over your licensing partner. For example, when I was licensing the big entertainment properties, the studios used a very strict quality control approval process. All product submissions were not approved until they received written approval to move to the next stage of production.

If you don’t enforce your quality control terms, you risk not only damaging the value of your trademark but also possibly losing rights to it as well.

Copyright License

Copyrights are unique because they include six different rights (copy, edit/add, perform, print, distribute, and reuse) within the copyright itself. A copyright licensing agreement gives someone a limited number of rights to use your copyright for a certain period. The key is limited. It restricts the use of other rights.

For instance, a book is licensed for reproduction and distribution rights to a publisher, but not the rights to any derivatives (such as a TV show) or the merchandise. The publisher only has rights to make, distribute and sell copies of the book.

In the technology industry, copyrights protect software, and the licensing agreement limits how the rights are used. For instance, the rights are limited to distribution to the end-user or the business market or bundled under an OEM licensing agreement.

That’s why a copyright licensing agreement is very specific on which rights are included, as well as those rights not included. Otherwise, you can wind up in a dispute down the road when you try to license your copyright to other licensing partners.

Trade Secrets

Trade secrets cover a diverse range of IP including formulas, know-how, software, business systems, manufacturing processes, and all types of data such as information about suppliers, competitors, and customers.

Examples of well-known trade secrets include the formula for Coca-Cola and Google’s proprietary search algorithm, which helped it achieve dominance over the Internet.

Trade secrets are unregistered IP, and keeping control of your information is key. Be sure your licensing agreements specify what and how it’s used by your licensing partners. The goal is making sure your information remains confidential. The licensing agreement details what information is confidential (and what isn’t), limits what the licensee may use it for, and specifies how long it must stay secret (usually two to five years).

Trade secrets are often included in a patent license agreement (known as a hybrid agreement). In many cases, they enhance the value of the patent and can extend the life of the patent license agreement.

You wouldn’t use a commercial lease to rent your one bedroom house. The same is true for licensing. Before licensing your intellectual property, be sure you know what type of agreement you’ll need. While many of the terms in licensing agreements are standard, there are some critical differences specific to each type of IP. Work with a qualified licensing attorney so they can make sure all the agreement terms are properly written, your rights are protected, the contract is clear, and nothing is open to “interpretation” by you or your licensing partner.

Copyright Owners Guide to Licensing

Learn the basics of copyright protection and how to use licensing to make money with your copyright.

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