Eight Essential Questions for Potential Licensors or Licensees

Excerpted from Complete Licensing Kit by Ron Idra and James L. Rogers © 2007

When developing your overall business licensing decisions, it also helps to consider all the separate business issues as a series of questions. The basic business questions that should be answered by both licensor and licensee are as follows.

? Who are the parties to the license?
? What intellectual property rights will be licensed?
? What can the licensee do with the intellectual property?
? Will the license be exclusive or nonexclusive?
? What will the payment be?
? What is the license term?
? What are the conditions for termination?
? Will any services be performed by either party?

Who Are the Parties?
When entering into any business relationship, it is clearly important to know with whom you are doing business. With respect to license agreements, it also becomes important to precisely define all the parties to the license. Due to the complexities of many business transactions, you need to pay careful attention to this issue.

The two main parties to a license agreement are, of course, the licensor and licensee. However, it is not enough to know who the licensor and licensee are in a vague way. Both parties must be accurately defined. If you are the licensor, you have to first determine and then define the companies, departments, affiliates, and individuals who will be receiving and using your intellectual property. Deciding this may depend on other business terms and conditions. Properly defining the parties and resolving the legal issues with this point is covered in the next chapter.

NOTE: When entering into discussions with potential licensees, the licensor should be very careful about disclosing any trade secrets, ideas for future development, or any other confidential information. Often, this is done by having the other party sign a confidentiality (nondisclosure) agreement before any important information is exchanged or business transacted.

What Intellectual Property will be Licensed?
The license grant provision is pretty much the heart of the licensing transaction and the license agreement. After identifying and defining the parties to the license, the next issue is deciding upon and structuring the nature of the license grant.

In some cases, a licensor needs to take a preliminary step before deciding what rights to grant. This is especially true for companies (or individuals) who own a large number or a wide variety of intellectual property rights.

For the licensor, a prior step to deciding what to license is determining what intellectual property is actually possessed. This may sound a bit counterintuitive—after all, how can someone be unaware of what he or she owns? However, ownership of intellectual property is more complicated than owning property of the physical kind. If, for example, you own several patents, numerous copyrighted works, or registered (or unregistered) trademarks, you will probably need accurate records to keep track of your rights.

Remember that owning intellectual property is very different from owning physical property. The former involves development or acquisition, registration (in some cases), and subsequently, proper maintenance, payment of fees, and recordkeeping. If you own multiple intellectual property rights, keeping accurate track of these rights is an especially important process.

NOTE: For many companies, an efficient way to keep track of their intellectual property is with an invention disclosure form for patents and a general disclosure form for other types of intellectual property. Further, to fully map out the entire inventory of its intellectual property, a company may conduct what is known as an intellectual property audit. This type of audit is similar to its financial counterpart, except the investigation is of the exact nature and scope of the intellectual property owned by a company.

The intellectual property being licensed can take a wide variety of forms. For example, your licensed intellectual property could be any of the following, or include any combinations of these:

? patents:
? a patented invention;
? a patent application, which has not yet issued; or,
? a developed product based on a patent;
? copyright—any artistic work, such as a film, video or video clip, novel, article, musical composition, work of art, photograph, painting, drawing, sculpture, or most software;
? trademark—a word, phrase, or logo—either federally or state registered, or unregistered; or,
? trade secret—confidential information used in business, such as a client list, technical designs or specifications for a machine or process, or software.

It is worth noting that regardless of the exact type of the invention, product, artistic work, or information, it is always intellectual property rights—patent, copyright, trademark, and trade secrets—that are being licensed.

Remember that a licensor can license more than one form of intellectual property. In many cases, licensing a combination of IP rights will actually be more advantageous for both parties. In fact, the presence of more than one type of intellectual property in a license may increase the overall value of the license. This is especially the case if one of the licensed intellectual property rights is generally recognized by the public. For instance, a patented product, not yet marketed, that is packaged with a well-known trademark may be a lot easier for the licensee to commercialize.

Some commonly licensed combinations of intellectual property rights include:

? patent and trade secret—a patented device or machine together with technical information protected by a trade secret;
? copyright and trademark—a copyrighted design, character, or picture together with the licensor’s trademark; and,
? patent and copyright—software that is protected by patent as well as copyright.

NOTE: There are several points worth noting if you are licensing a patent. A licensor may license a patent application that is still pending—that is, one that has not yet been granted. However, once a patent has been granted, it may be legally licensed only if the patent is still in force—in other words, still within its twenty-year term.

Regardless of the type of right or rights granted, everything must be carefully defined and spelled out in the license. The next chapter discusses these details and nuances of drafting this license grant provision.

What can the Licensee Do with the Intellectual Property?
The next step you have to consider is what the intellectual property will be used for, and the extent or scope of such use. Typically, the licensee receives intellectual property rights for the purpose of either:

? using the rights itself or
? producing, making, and selling a product based on these rights.

For convenience, these two categories of licenses will be referred to as use-only licenses and produce and sell licenses. This distinction is a very important one, since together with the intellectual property to be licensed, it defines the most central aspect of the license.

NOTE: The terms use-only and produce and sell are not technical legal names for these types of licenses. They are being used to help make this key distinction absolutely clear.

Use-Only Licenses
If the license falls into the first category, the licensee may only use the in

As Featured in the Book

Complete Licensing Kit (+ CD-ROM)

Ron Idra, Attorney at Law, James L. Rogers Attorney at Law

This book serves as an introduction and guide to reviewing, writing, and negotiating most of the licenses and agreements necessary to turn intellectual property into profit.

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