Anything you create which is owned by your business—be it a trademark, patent, design, or any other invention—is considered your intellectual property (“IP”). And if you’re ready to monetize your creations, then you might consider leasing IP rights to others who want to use them. But how do you protect your ownership rights while maximizing revenue generation?
Well, it comes down to a contract known as an IP licensing agreement. In this article, our business lawyers will explain what it means to lease your IP and what your IP licensing agreement should include.
What Does Leasing Intellectual Property Mean?
Leasing IP means one party (the licensor) gives another party (the licensee) the right to use the IP in a certain way, or for a certain purpose, all while retaining ownership of the IP.
Typically, the licensee pays for the right to use the IP, whether this is a one-off fee, royalties, or a subscription model. And there’s usually a time limit for how long the licensee can use the IP without renewing the agreement.
Pros of Licensing Intellectual Property
Licensing your IP offers three key benefits.
- Revenue Generation: Licensing IP opens new revenue streams and passive income.
- Business Growth: Licensing your IP can help to boost your reputation and allow you to enter new markets. If you’re the licensor, then you could grow your business by using IP from a respected and established brand.
- Product Development: By licensing your IP, you’re supporting the development of new products and services.
Cons of Licensing Intellectual Property
Sure, there are upsides to IP licensing. However, there are also some drawbacks to consider.
- IP Theft Risk: There’s always a risk that the licensee will overstep the boundaries and duplicate, sell, share, or misuse your IP.
- Increased Competition: Depending on the license scope, you could cause extra competition in the marketplace for yourself, should you license your IP.
- Reputation Damage: If you’re using another company’s IP, and they don’t maintain the IP sufficiently, your business could suffer as a result. Or, as the licensor, your reputation could suffer if the licensee doesn’t use your IP effectively.
Licensing your IP can be a gateway to growing your business, but it’s not without possible downsides. Our business lawyers can help you decide if leasing intellectual property can move you closer to your commercial goals.
What Are Intellectual Property Agreements?
Intellectual property agreements are contracts that outline what IP rights have been granted, and what rights the licensee has to use the IP. In short, they confirm the terms and conditions under which the licensee can use the IP without infringing on the licensor’s ownership rights.
- One license can cover various IP rights, such as designs and patents.
- Common IP license agreements include the right to use certain software, patented inventions, and trademarks.
- Some licenses give one party the right to use the IP. Others allow multiple users to access the IP.
Who Needs an IP Licensing Agreement?
Have you created any type of intellectual property that another party might wish to use? If so, you should strongly consider having an IP licensing agreement. A legally binding contract is the best way to leverage your IP to your advantage, all while protecting your ownership rights.
Still not sure if you need an intellectual property agreement? The contract lawyers at Gordon Law are happy to assist.
What Are the Benefits of an IP Licensing Agreement?
IP licensing agreements are critical to the assignment of intellectual property rights—here’s why.
- Monetization: An effective IP licensing agreement allows you to commercialize your designs without compromising your ownership rights.
- Clarity: All parties involved understand what IP is included in the license and what IP is not. This helps to avoid disputes over the scope of the licensee’s rights to use the IP.
- Dispute Resolution: Carefully drafted IP license agreements can reduce the overall likelihood of disputes arising, and provide clarity on what happens next, should disputes arise.
Without an IP licensing agreement, there’s a greater risk of IP theft and even reputational damage. Our contract team can assist if you need help drafting an effective contract for leasing your intellectual property.
What Should an IP Licensing Agreement Include?
There’s no such thing as a “one size fits all” approach to IP licensing agreements. Every agreement is entirely unique—just like your intellectual property. But that point aside, every IP licensing agreement should cover, at a minimum, the following areas.
- Property Description: Describe the IP and the nature of the rights granted through the contract.
- License Scope: Confirm the scope of the IP rights granted. For example, this could be the right to publish, distribute, or translate a piece of work. You should also clarify the limits of these rights so that the licensee knows what rights are not included.
- Parties Involved: Name the licensor and the licensee(s). This ensures that all parties involved understand who is entitled to use the IP and who the owner is.
- Confidentiality and Non-Disclosure: If there are confidentiality issues e.g. trade secrets involved, then you should specify how long any non-disclosure agreement should last for.
- Exclusions: It might sound obvious, but confirm what the licensee can’t do with the IP e.g. distribute, share, or tamper with the IP in any way. Confirm what penalties—such as immediate contract termination—apply if the licensee breaches these rules.
- Payment Terms: Outline the rules around how payments (such as subscription fees) should be paid and managed. If royalties are involved, it’s common for the licensee to pay a set percentage fee to the licensor. The percentage and frequency of payment should be described in the agreement.
- Duration and Renewal: Confirm how long the IP license lasts for and, if relevant, the procedure for renewing the license.
- Warranties: Use the IP license agreement to reduce your liability for any relevant losses incurred by the other party. You should also warrant that you actually own the IP that you’re licensing—this can provide reassurance and confidence to the licensee.
- Maintenance: If the licensor is obliged to maintain the IP or keep it updated (for example, if it’s a SaaS platform) then the details should be outlined in the licensing agreement.
- Termination: Establish the grounds on which the IP licensing agreement can be terminated e.g. if the licensee breaches the contract, or if the licensor decides to withdraw the IP from use.
- Taxation: Any relevant tax issues must be considered, especially if royalties are involved. The way your deal is structured can impact one or both parties’ tax liabilities.
- Governing Law: The agreement should establish which laws govern the agreement. This could be, for example, where the parties are based, or where the licensor has its primary place of business. Take note, though: since every territory has different laws, the choice made here can significantly impact your rights and obligations.
- Dispute Resolution: Outline how disputes may be resolved e.g. by mediation, litigation, or arbitration. You can also establish how legal costs may be apportioned.
As we can see, IP licensing agreements are fairly complex! Always consider seeking legal advice prior to leasing your intellectual property to preserve your ownership rights and protect your best interests.
Learn More About IP Licensing Agreements: Contact Gordon Law!
Want to discuss intellectual property acquisition in more detail? We’re here to help!
At Gordon Law, we know how complex leasing intellectual property can be. And we know how to help you protect your IP, preserve your ownership rights, and avoid costly IP disputes. After all, we’ve been successfully helping clients resolve contractual issues for over 10 years! So, whether you need advice on how to lease intellectual property, or you need an intellectual property agreement, don’t hesitate to give Gordon Law a call at (847) 580-1279.
