Article_10 Law Office of Barbara I. Berschler Attorneys Rockville Maryland

Licensing Intellectual Property, Some Thoughts......

In this day and age, most business owners come in contact with the licensing of intellectual property, such as trademarks, copyrightable materials (think of software), trade secrets, and patents. If you are the owner of the intellectual property, then as the "licensor" you have certain questions to answer before you license the use of your property to another. If you wish to use the intellectual property of someone else, then as the "licensee" you will have different questions to answer to assure yourself that you are making use of the property legally .

Of course in both instances, the questions to be asked can vary depending upon the type of intellectual property to be licensed. It is important to understand from the beginning that the term "to license" means that the licensee may legally use the rights associated with the intellectual property, provided she stays within the limits set out in the license agreement. Otherwise, if she uses the intellectual property of another outside the scope of the license, she will be guilty of infringement, which can have very serious consequences. Needless to say, there are exceptions to the broad statement I made above; but I will not digress into those exceptions at this time. Rather, the purpose of this article is to examine some of the typical issues licensors and licensees should consider. Keep in mind, an important issue for one party to a license is probably an important issue to the other party, just the other side of the coin.

Here are three significant issues from the perspective of the licensor. First, identify what is the intellectual property you wish to license. For example, since a trade secret is good only if it remains a "secret," it is critical that the license require the licensee to keep the secret and to put in place procedures so that the secret does not leak out. By contrast, to protect your rights in software or a painting, you are not concerned about keeping a secret, but rather you wish to prevent people from making unauthorized copies of your work.

Second, know exactly with whom you are contracting. Is it an individual or an entity? If it is the latter, then the person signing on its behalf must have the legal authority to bind the entity and the means to ensure that the provisions of the license are enforced. If it is an individual signing, you want to make it clear within the licence that she cannot let others use the rights in the property without your express written approval.

Third, understand what rights you wish to grant to the licensee. There are big differences in the rights granted in the following phrases: " A world-wide right to distribute a novel" versus "The right to distribute a novel in English in the continental United States." In the case of the latter grant of authority, the licensor has reserved the right to allow others to distribute the novel outside of the continental United States and even to allow others to distribute the novel in Spanish, for example, within the United States. Another set of phrases demonstrating the importance of the words selected to describe the grant of rights is: the grant of "an exclusive license to copy certain materials" versus "a non-exclusive license to copy those materials." Note that in the case of an exclusive license, you, as the author of the materials, would not be able to copy them, because the licensee would have the "exclusive" right to do so.

Additional issues a licensor would want to consider include: Will the licensee be able to sub-license the rights being granted? How will the licensor be paid, i.e., by a royalty or a flat fee? How long will the license last?

From the perspective of the licensee, one major concern is: Does the licensor really have all of the rights he claims to be granting to you? If he does not, and you nonetheless use the material, you could be guilty of infringing the intellectual property rights of a third party. To protect yourself from that kind of dilemma, you will want the licensor to make certain representations and warranties to you about the extent of his ownership in the rights he is licensing to you. You will also want the licensor to "indemnify, defend and hold you harmless." Such a phrase means that if a third party claimed it owned the intellectual property you were using without having obtained that third party's permission, you can look to the licensor to defend you from such a charge.

A second issue involves whether or not you gain ownership in any new intellectual property created by you in the course of the relationship with the licensor. For example, if you license the use of certain software and are able to make improvements to it, who will own the rights in those improvements?

A third issue to consider is the extent to which you may transfer the rights granted you under the license. This will be of prime importance if you want to sell your business or something happens to you and your interest in the business is transferred to another party.

Because a considerable amount of money may be involved with an intellectual property license and because the licensed rights are of great value to both the licensor and licensee, it is important to draft and examine carefully the underlining license agreement to be sure you get the full benefit of your bargain.