Licensing

The scope of these notes is to give the bare bones of:

  • usual patents,
  • designs and
  • industrial copyright licensing.

Please note that this is a complex subject and that finalised licence agreements are likely to include clauses relating to details beyond the scope of these notes.

LICENCE

A patent (and the other rights) gives its proprietor – the licensor – the exclusive right to manufacture and sell a product within a country.

In a licence, the licensor permits someone else – the licensee – to manufacture and sell in exchange for payment.

Very often the licence is exclusive. Exclusivity not only bars the licensor from granting anyone else a licence for the country concerned, but also bars them from manufacturing and selling in that country.

PAYMENT

Payments generally comprise three elements:

  • Premium or “up-front” payment: This is an initial payment which the licensor likes to see as a token of good faith. In practice, the licensor is likely to be involved in heavy legal and patent costs and looks to the licensee for payment of at least part of these. Often the licensor will be making available a considerable amount of know-how and can seek payment for this via the premium.
  • Exclusivity payments: These are minimum payments which the licensor will expect to be made within one year, to ensure that the licensee is trying hard enough to exploit the product. The normal penalty for failure to make the exclusivity payments is the loss of the exclusivity which allows the licensor to exploit the product himself and/or appoint another licensee.
  • Ordinary royalties: These are generally payments based on a percentage of work sales price. The actual percentage rate varies widely according to the nature of the product. An alternative to the percentage basis is a flat rate payment per product – inflation linked.
PRODUCT

The exact nature of the product being licensed is important and should be carefully defined.

TERRITORY

The licence may be for one country only, or for a number of countries. Difficulties can arise with EEC law (European Economic Community) where the territory is a part only of the EEC.

THE PATENTS

The patents under which the licence is granted need recitation. It should be made clear the licensor or the licensee is to pay for keeping the patents in force. Generally, this will be the licensor.

OTHER ASPECTS

These can include:

  • Trade Marks
  • Quality Control
  • Sub Licensing
  • Length of life of the license
  • Improvements in the product
  • Other clauses beyond the scope of these notes

In contemplating a licence, it is sensible for the licensor and licensee to agree on the basis ground rules covering:

  • Exclusivity
  • Payment
  • Product licensed and
  • Territory

before becoming involved with the further details.

Every licence requires tailoring to the particular situation involved.