A licensing agreement is an agreement between a legal Right owner and the person who is being authorized to use the rights for a valid consideration in the nature of an agreed fees or royalty. Licensing of intellectual property rights can be carried out in three different ways i.e. technology license agreement for patented technology, trademark/ franchise license agreement and copyright licensing agreements. A licensor expands his business and earns additionally by licensing its IP rights and the licensee exploits the acquired rights to generate profits by using the technology or the brand value thus, benefiting both the licensor and licensee.
A license agreement has a term of stipulated length of time till which the agreement is binding and within a limited territory where the licensor has the rights granted. It is generally suggested that,IP rights should not be licensedto another person if you have the required expertise to commercialize it fully.
Furthermore, there are various other ways in which intellectual property rights can be commercialized such as an assignment or joint-venture spin offs. Assignment differs from licensing in terms of change or transfer of ownership. In case of an assignment, the ownership rights are transferred fully whereas in the case of license agreement, the existing owner retains the ownership and only an interest in the right is/are shared. Assignments must be in writing and filed with the USPTO but licenses on the other hand can be agreed upon orally. Unlike licensing, assignments can be done in parts that is, you may assign half of the rights.Assignments unlike licenses are completely transferred forever without any timely limitation. So, that means if you use your trademark after you have assigned it to somebody else, you can be sued for infringement.
In Trademark licensing, the licensor grants permission to the licensee to conduct business under the trademark in return of fees or royalty without the fear of getting sued. Most of the times, a license agreement is expressed in the form of written contract also adding the scope of the license. In contractual form, there are various considerations involved which are essential to trademark licensing. Most importantly, a license agreement must have a performance requirement clause which allows for penalties and dissolution of the agreement in case the licensee breaches the contract. A clause shall be mentioned expressing the exclusivity of the agreement which solely gives the right of use to the licensee and in case of non-exclusive licenses, the licensee is given the option to further sub-licenseits right of use to others. Termination clause specifically sets the term period of the license and puts forth the conditions of renewal.
The licensee may choose to keep the payment/ royalty clause or both which govern the transactions to be made for the licensing of rights. The payment clause covers the License issue fees which provides for the initial payment by licensee and the royalty clausegoverns the Royalty (percentage of every sale) that has to be paid to the licensor on per-unit sale royalty basis. The licensor may keep a modification or enhancement clause if he is willing to allow the licensee to make any enhancement to the existing trademark.
Additionally, in a license agreement you may keep a product liability clause specifying the liabilities in case of any arising dispute from the services. Situation often arises where the trademark owner abandon the control over the licensee once the agreement is over. This is called naked licensing when the licensor fails to exercise a quality check and control which gives the licensee a defence under naked licensing. It was also held in the 2011 judgment by 7th Circuit court in the Eva’s Bridal Ltd. v. Halanick Enterpriseswhere the plaintiff claimed infringement after five years of expiry of the license and was rejected by court on the grounds of naked licensing.
If you want your agreement to be enforceable and give you an added advantage, you would require a professional on this matter who would make your agreement even more negotiable. Also, while drafting agreements it usually seen that many terms create confusion and are unenforceable. A professional will help you eke out such common errors.