Licensing

The scope of these notes is to give the bare bones only 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 in 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 him from manufacturing and selling in that country.

PAYMENT

Payments generally comprise three elements –

  1. Premium or "up-front" payment.

This payment is an initial payment which the licensor likes to see at the very least 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 a t least party of these. Often the licensor will be making available a considerable amount of know-how and can seek payment for this via the premium.

ii. Exclusivity payments.

These are minimum payment which the licensor will expect to be made in 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 loss of exclusivity which allows the licensor to exploit the product himself and/or appoint another licensee.

iii Ordinary royalties.

These are generally payments bases on a percentage of ex. works 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 where the territory is a part only of the EEC. (There are guidelines as to what is acceptable under EEC law as regards exclusive licenses).

THE PATENTS

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

OTHER ASPECTS

These can include –

  1. Trade Marks
  2. Quality Control
  3. Sub Licensing
  4. Length of life of the licence
  5. Improvements in the product
  6. Other clauses beyond the scope of these note.

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.