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Key issues in an Intellectual Property Licence

Key Issues in an Intellectual Property Licence

If you are negotiating the right to use any intellectual property right/s (IPR/s), you should agree the terms and conditions and other provisions on which the IPRs are to be licensed, and then set them out in detail in wiritng in a licensing agreement. Such an agreement should include the following:

Subject Matter: There should be provisions that identify and define precisely the IPRs and underlying assets that form the subject matter of the licence. Some products or services involve a single IPR (e.g. copyright in a computer program) but, especially in the case of technology transfer, a bundle of IPRs may need to be licensed in order to allow the licensee to exploit that technology (e.g. patents, know-how and trademarks).

Extent of the Licence: It should set out the extent of the licensee's rights. These may include whether the licence granted is exclusive, sole or non-exclusive, whether the licensee can sublicence the IPRs to others, the geographic territory in which the licence applies, and the scope of use permitted, (e.g. within a particular market sector or limited to a specific application of the IPRs). An issue to be agreed and included which will be critical for the licensee will be whether the licensor allows or requires the licensee to take action to defend the licensed IPRs against infringement by third parties.

Improvement and Upgrades: Where there will or might be improvements and upgrades of technology that is licensed,  licence provisions may need to cover who is to own such improvements and upgrades, the flow of information between the parties, the right of each party to use such improvements, and whether or not such use is subject to further payment.

Warranties: As part of the licence terms, the licensor can agree to warrant that the technology is effective and safe, that he owns the IPRs, and to indemnify the licensee against loss, costs etc arising either from a third party suing for infringement or from a breach of that warranty. Whether such a warranty and/or indemnity is included, and the scope of any such a warranty or indemnity, are matters to be negotiated and agreed, and the licensor might only agree to include a restricted warranty or indemnity.

Duration: A licence can, at most, only last as long as the IPRs in question. Hence, where a bundle of IPRs is being licensed, royalties for each IPR should be separately stated so that royalties for continuing IPRs are payable after one IPR has expired.

Termination: The licence agreement should state when and how it can or will be terminated. It may be by agreement, notice, where an important term is broken, if one party becomes insolvent, and/or on a change of ownership or control of one of the parties. It should also spell out what will be the rights and obligations of licensor and licensee upon and following termination.

Dispute Resolution: If the agreement contains provision for dispute resolution, methods might include litigation through the courts and/or arbitration and/or a form of alternative dispute resolution. It should also state which national law will apply to interpretation and enforcement of the agreement.

Registering the User: With registered IPRs, you should check whether you can or should register the agreement with the appropriate part of the Intellectual Property Office, and any time limit in which registration needs to occur.

Tax and Accounting: How licensing or transfer of IPRs is achieved and paid for can have important tax and accounting consequences. Where payments are related to levels of sales (e.g. royalties), they are likely to be treated by the Inland Revenue as income. However, if IPRs are disposed of outright (assigned) or where money is received by way of a lump sum, it is more likely to be treated as capital.

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