Licensing and License Agreements

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Licensing refers to the total or partial transfer of exploitation and usage rights relating to intangible assets. The production and marketing of products resulting from product and research development often require significant financial resources, so a company may prefer to transfer exploitation and usage rights to other businesses.

Instead of a company or inventor, a university, for example, can also act as a licensor, as long as it’s the owner of the intellectual property. On the other hand, the licensee often lacks the opportunity to develop missing resources internally, so they are acquired through collaboration agreements or corporate arrangements. Additionally, through licensing, the licensee may also seek operational freedom or fast entry into the market.

Licensing Agreements in Business

Licensing grants the right to use the intellectual property of the licensor as defined in the agreement (known as licensing agreements). License agreements can also involve the transfer of manufacturing and/or distribution rights of an intangible asset. The license agreement may also include provisions for the other party to further develop and license the intellectual property covered by the agreement. The subject of the exploitation and usage rights transferred through a license agreement can include technology protected by patents or utility models, trademarks, or copyright-protected computer programs. In return, the licensee pays a financial compensation for the granted usage rights. Thus, a license provides the holder of intellectual property rights with the opportunity for additional income through exclusive rights.

A licensing agreement specifies the intellectual property to be licensed, defines responsibilities and the limits of the usage rights, and outlines the compensation to be paid to the licensor. The license fee can be a fixed annual fee or a royalty-based compensation. The license may be royalty-free as well.

The extent of the granted usage rights can vary significantly. A license can be exclusive, where the licensor transfers all usage rights to the licensee. Exclusive license agreements prohibit the licensor from granting license rights to other parties. However, the ownership of intellectual property rights remains with the licensor. An exclusive license can also be limited to a specific mode of use. Instead of an exclusive license, a license can be granted as a non-exclusive license, allowing the usage rights to be granted to multiple parties simultaneously. A license can also be a sole license, where the licensor grants the licensee exclusive usage rights but retains the right to exploit the subject of the agreement.

It is important to draft licensing agreements with expertise since they are often developed in complex production and distribution environments. The goal of a licensing agreement is to establish an ongoing cooperation that benefits both parties.

Granting licenses can be beneficial to a company in various ways. A company can generate license fees by licensing its technology and strive to standardize its technical solution to reach larger commercial markets. On the other hand, licensing can also be motivated by the desire to prevent potential infringements of intellectual property rights.

Typically, the licensee pays ongoing royalties or license fees in exchange for the granted usage rights. However, there are also licenses that are granted without monetary compensation, such as open-source licenses. Open-source technology transferred without consideration can serve as value-added marketing for a company.

Licensing Agreements and Technology Licensing

When a company considers licensing its technology or other inventions, it is advisable to assess the market and the existing technology in the industry to find potential licensors and identify the market. In addition to the license agreement, confidentiality should also be addressed in the licensing negotiations.

Know-how licenses are granted for the utilization of trade secrets. Obtaining a patent usually takes years, and the value of an invention may remain limited in a rapidly changing world if one waits for the patent to be granted. In such cases, the main point is to have a pending patent application. If the licensable invention is protected solely as a trade secret, maintaining the confidentiality of the invention is particularly critical to preserve its novelty. It is generally advisable to seek a patent or utility model for an invention before licensing in order to secure the licensor’s rights on the invention.

When negotiating the licensing of a patent or utility model, the temporal duration and territorial scope of the patent or utility model should be taken into account.

Trademark Licensing

Trademark licensing can cover all goods and services or only a portion of the goods and services covered by the mark. Licensing a trademark can be a means for the licensor to generate long-term income through royalty payments. Additionally, trademark licensing promotes the visibility of the mark and can strengthen its brand value. In recent years, co-branding has emerged as a popular form of licensing and marketing strategy.

When licensing a trademark, it is advisable to agree on quality criteria for products bearing the licensed trademark and establish quality control measures. The licensor may also define how the licensed trademark can be used on products and in marketing. In negotiating the license agreement, it is also important to establish geographic and temporal restrictions on the use of the trademark.