IP is licensed when an owner of IP (called the licensor) confers upon another person (called the licensee) permission to use the licensor’s IP.
This permission, or licence, is recorded in a contract, which sets out the rights, duties and obligations of each party in relation to the licensed rights.
The licence can be:
- exclusive, where the licensee is the only person authorised to exploit the IP, so that not even the owner can exploit the IP
- sole, where the licensee is the only person that will be granted a licence to exploit the IP, but the owner retains the right to exploit the IP as well
- non-exclusive, where the licensor can grant as many licences as the licensor decides, and also retains the right to exploit the IP as well
Licences are typically granted for royalties, which are paid periodically, often as a percentage of the invoice price for which a licensor sells the product encompassed in the IP. Other types of financial payments can also be made, depending on the custom in specific industry sectors, such as up front payments, and milestone payments, which are additional lump sum payments that are paid upon the achievement of milestones or major events in the commercialisation of the IP.
Licensing is the most common mechanism by which technology transfer takes place, by which a developer of IP transfers the technology to a user or commercialiser of the IP.
Licensing is also a common structure for more specific licensing relationships.
Franchising is such a special licensing relationship. Under a franchise agreement, a franchisor typically licenses a combination of:
- trade marks
- trade secrets and know how in the form of business methods, work systems and processes
Merchandising is another special licensing relationship where the subject matter of the licence can be trade marks, copyright and designs. Sometimes they take the form of character images and logos etc. The merchandising licence is often granted to a manufacturer of products, who places well known brand, design, logo or image etc on the product to make it a more appealing product to a consumer.
Brand extension licensing is a further special licensing relationship. It occurs when a trade mark owner, who has a trade mark that is well recognised in the marketplace in relation to its own products, licenses the use of its trade mark to a licensee in relation to other products. In this way, the licensee’s non-competing products leverage on the licensor’s existing trade mark and marketplace recognition.