License agreements
Putting your intellectual property to work for you
A license is an agreement with someone else
Intellectual property rights like trademark, copyright, and patent rights are shared through formal license agreements. License agreements protect both the IP owner (the licensor) and the party who wants to use the IP (the licensee) by accurately spelling out the scope of the permission, each party’s respective obligations (including payment), and the process for ending the business relationship after a period of time. There are nuances to each type of license agreement, but whatever the issue, the written document should explicitly describe the limitations on the license – such as whether it is exclusive or non-exclusive – and care must be taken to avoid conflicting terms among multiple license agreements of the same IP.
Consistency is mandatory to protect your rights
Intellectual property owners should consistently use written license agreements whenever any rights are granted to a third party, even if the rights are shared for no payment.
Owners must consistently exercise strict control over their rights to avoid losing them.
Exclusive vs. non-exclusive
Intellectual property can be licensed exclusively or non-exclusively. For example, if you have patent on an improved coffee maker, you might give an exclusive license to Mr. Coffee™ to make your coffee maker and sell it. Using an exclusive license, Mr. Coffee™ might want such an arrangement to prevent it from having to compete with other coffee maker manufacturers utilizing your patented design. In this case, an exclusive license might make sense.
On the other hand, if you have a copyright for a photo, you might non-exclusively license the same photo for many uses or to many parties. Sale of a copyrighted stock photo online is an example of this use. One person may pay to use it for their business card, but it won’t stop another person from also paying to use it for their own business card or some other use, such as on a website. If either party wanted exclusive use of your photo, they would pay a premium to prevent others from using it.
Exclusive vs. non-exclusive is just one of the important nuances of licensing that an attorney can help you navigate.
Trademark license agreements
A trademark license agreement has a requirement that is unique to it in order to be enforceable. A trademark license must provide for the trademark owner to have adequate means to ensure the quality of the goods bearing the licensed trademark. The reason for this is that one of the purposes of a trademark is to protect the consumer from inferior quality products. FreecycleSunnyvale v. Freecycle Network, 626 F.3d 509, 515 (9th Cir. 2010). Being sure that standards of quality are being maintained allows the public to rely on the trademark to vouch for the quality of the good. On the other hand, if a trademark owner issues a trademark license having no method to ensure good quality (a so-called “naked license”), then the consumer protection purpose of the trademark is frustrated. A naked license can lead to losing the trademark altogether.
Patent license agreements
A patent license agreement grants to the end user the right to make, use, sell, offer to sell, or import a patented product. There are many complicated aspects of patent licensing, including geographic scope and field of use. Because patents expire, there are some nuanced aspects to patent licenses. One limitation is that the patent license may not exceed the term of the patent. Brulotte v. Thys Co., 85 S. Ct. 176 (1964). In that case, the owner of a patent unsuccessfully attempted to extend the payment of royalties beyond the term of the patent license. The Court found this was improper because it extended the patent right’s exclusivity beyond the time envisioned by Congress.
Copyright license agreements
A copyright license agreement can be complex because it may relate to specific fields of use. Copyright rights are particularly amenable to being separately licensed. For example, an author may license the rights to the book for use in connection with a screenplay or movie. But the author may not want to license so-called “derivative uses,” the right to make spin-offs or sequels. Ensuring that only the rights you want to license are in fact transferred is an important part of counseling on license agreements.
Likewise, the license may relate to specific countries, industries, and the number of views. For example, a photographer may issue a license to an end user to publish a photo on a website. Use of the same photograph may not be permitted, however, in a television commercial. These fields of use are important considerations when reading or creating a license agreement.
Royalties
A “royalty” is the term of art. A royalty is the “compensation for the use of property . . . expressed as a percentage of receipts from using the property or as an account per unit produced.” Carpenter Tech. Corp. v. Armco, Inc., 800 F. Supp. 215, 227 (E.D. Pa. 1992). A fixed-fee license that does not fluctuate is something different from a royalty. Tekelec, Inc. v. Verint Sys., 708 F.3d 658, 666 (5th Cir. 2013). The question of whether a royalty or fixed-fee is appropriate is dependent on the specific facts of your intellectual property and your contemplated license or licenses. Making sure you are utilizing the correct framework is an important reason to have your licensing agreement reviewed by an attorney before you sign it.