Businesses can develop a range of different Intellectual Property [IP] in the ordinary course of operating their business. It is important this IP, which is an asset and can become valuable as a balance sheet item, is identified and protected. Some forms of IP such as plant breeder rights, circuit layout rights, patents and designs require registration with IP Australia for exclusivity and enforcement rights.
Once the IP is identified and established as a business asset, one way it can be commercialised to produce a profit for the business is by granting rights to others to use that asset, known as a licence. The licence works by exchanging the right for the licensee to use the IP asset for something in return (usually a payment of money). The licensor (the party who owns or has the right to licence the IP asset) and the licensee (the party who is granted a right to use the IP asset) will agree to a set of terms and conditions which should be documented in a formal legal agreement.
The benefit of a licence (as opposed to any sale of the IP) is that the IP owner will maintain ownership over the IP. Any decision to sell or license an IP asset should be well considered, and accounting and legal advice obtained as part of that decision making process.
There are typically three types of commercial types of IP licences – exclusive, non-exclusive, and sole.
Exclusive Licence
An exclusive licence allows the licensee exclusively to both use and commercialise the IP – this usually includes the exclusion of the licensor. Depending on the type of IP being licensed, only when a license is exclusive can a licensee pursue court action to enforce the exclusion of others from using the asset.
Licensors may still place specific restrictions on the exclusive licensee’s use of the asset in limiting the licence by product type, geographical area, or field – meaning any of the licensed subject matter not carved out for the licensee may be reserved for use by the licensor. These restrictions can permit the licensor to retain IP rights in the restricted areas and exploit their own IP.
Exclusive licences usually command a higher payment from the licensee in exchange for that exclusive licence status.
Non-Exclusive Licence
A non-exclusive licence allows the licensor to license the IP to multiple different parties, and retain usage rights for the licensor.
This means a licensor can use its own IP without as many limitations. In some instances, this may be more profitable since there can be greater IP commercialisation and more monetary payments. A non-exclusive licence can still set out restrictions on the use of the IP by licensees.
Sole Licence
A sole licence is a licence granted to only one person or business but still allows the licensor to use its IP.
This allows the licensor to have more control over their IP and continue to use it in conjunction with the licensee, unlike a typical exclusive licence. However, a sole licensee does not have any right to enforce the IP against infringers.
Selecting a Licence
When selecting an IP licence model, licensors should consider the purpose for licensing their IP.
Additionally, they should consider how much control they want to have over the IP and the licensee’s use of it.
For example, if the licensor is unable to further develop and commercialise the IP asset, or simply wants little to no involvement in the development of the IP, then an exclusive licence may be appropriate. Also, licensees may be reluctant to agree to a non-exclusive licence, since they can be less valuable than an exclusive licence.
On the other hand, if the licensor seeks to continue using their IP, or maintain some control over it, they may consider a non-exclusive or sole licence. This type of licence is preferred where it is important for a licensor to continue research and development activities around the particular technologies associated with the IP asset the subject of the licence.
Regardless of which licence is ultimately chosen, a formal licence agreement should be prepared to govern the relationship. A licence agreement should set out the following:
- way the licensor and the licensee are permitted to use the IP;
- length of time that the licence is valid (this may depend on the subject matter of the licence and any term of the IP right registrations);
- way in which research and development around the IP will continue, including as to ownership;
- any limits on the use of the IP (product, geography or field based);
- fees which are exchanged for the right to use the asset;
- parties’ responsibilities (for example, payment of IP registration renewals and insurance, or any rights or obligations to enforce the IP against infringers); and
- circumstances in which the licence may be assigned, transferred, sub-licenced, and terminated.