Licensing Agreements

Exclusive and non-exclusive licenses have important differences: Exclusive licenses grant rights to only one licensee in the specified territory/field. The licensor cannot grant further licenses or usually use the IP themselves. Licensees typically pay higher royalties and may have minimum performance requirements. They often gain greater rights including ability to sue infringers. Non-exclusive licenses allow multiple licensees to use the same IP. The licensor retains rights to license others and use the IP themselves. Individual royalty rates are typically lower but total revenue may be higher through multiple licensees. There's also sole licensing - where only the licensee and licensor can use the IP. Choice depends on: your business strategy, market size, licensee capabilities, exclusivity value to licensee, and desire to maintain flexibility.

Royalty calculations use several common methods: Percentage of net sales - most common for product licensing, typically ranging from 1-15% depending on industry and IP value. Fixed per-unit fees - set amount per product sold, useful for products with known costs. Lump sum payments - one-time fee for unlimited use within defined scope. Milestone payments - triggered by development, regulatory, or sales achievements. Profit sharing - percentage of licensee's profits from IP use. Combination approaches - upfront payment plus ongoing royalties. Typical rates vary by industry: pharmaceuticals 3-15%, software 1-10%, entertainment 5-25%, consumer products 2-10%. Factors affecting rates include: IP strength and value, market exclusivity, licensee investment required, competitive alternatives, territorial scope, and field of use restrictions.

Comprehensive licensing agreements should address: Scope of rights - specific IP being licensed, field of use restrictions, territorial limitations, duration, and exclusivity level. Financial terms - upfront fees, royalty rates and calculation methods, minimum royalties, payment schedules, and audit rights. Performance obligations - development milestones, commercialisation requirements, marketing commitments, and quality standards. IP ownership and improvements - who owns future developments and how improvements are shared. Representations and warranties - validity of IP rights, freedom to grant license, and indemnification provisions. Termination clauses - grounds for termination, notice requirements, and post-termination obligations. Dispute resolution - governing law, jurisdiction, and alternative dispute resolution procedures. Compliance requirements - regulatory obligations, reporting requirements, and record-keeping. Professional legal assistance ensures all important terms are properly addressed.

IP valuation for licensing involves multiple approaches: Cost approach - considers development costs, registration expenses, and replacement costs. Market approach - compares royalty rates for similar IP in comparable transactions. Income approach - calculates present value of future income streams from the IP. Relief from royalty method - estimates costs saved by owning vs licensing the IP. Factors affecting value include: remaining IP term, market size and growth, competitive advantages provided, ease of designing around, enforcement strength, and commercial success to date. Industry-specific considerations matter: pharmaceuticals focus on remaining patent life and regulatory barriers, software emphasises market adoption and network effects, entertainment values audience reach and merchandising potential. Professional IP valuation specialists can provide formal valuations for significant licensing deals or disputes.

License breach consequences depend on the severity and terms: Material breaches (non-payment, unauthorised use outside scope) typically allow immediate termination. Minor breaches usually require notice and opportunity to cure within specified timeframes. Remedies available include: demanding cure of breach within notice period, claiming damages for losses suffered, seeking injunctive relief to enforce terms, terminating license and seeking return of confidential information, claiming account of profits from unauthorised use. Specific remedies might include: increased royalty rates for late payments, audit rights to verify compliance, quality control enforcement measures, restrictions on sublicensing rights. Post-termination obligations typically include: stopping use of licensed IP, returning confidential materials, paying outstanding royalties, destroying licensed products. Well-drafted agreements specify exact procedures for different breach types and available remedies.

Sublicensing rights depend entirely on your original license agreement: Express permission - your license must specifically grant sublicensing rights or you cannot grant sublicenses. Scope limitations - even with sublicensing rights, you're typically limited to the same scope (territory, field of use, duration) as your original license. Approval requirements - many licenses require licensor approval for sublicenses or restrict sublicensees to certain types of entities. Revenue sharing - original licensor often requires sharing of sublicense revenues. Liability issues - you typically remain liable to the original licensor for all sublicensee actions. Control obligations - you may need to enforce quality standards and compliance on sublicensees. If your license doesn't permit sublicensing, you'll need to seek permission from the original licensor or have them license the third party directly. Always review original license terms carefully before attempting sublicensing.

License duration should align with business objectives and IP characteristics: Patents - often licensed for remaining patent term (up to 20 years) since protection ends anyway. Trademarks - can be indefinite with renewal options since trademarks can last forever with proper maintenance. Copyright - typically shorter terms (5-20 years) given long copyright duration, with renewal options. Trade secrets - often indefinite duration while information remains confidential and valuable. Considerations include: time needed for licensee to recoup investment and achieve profitability, competitive landscape changes over time, technology evolution and obsolescence risks, desire for flexibility to renegotiate terms. Common structures include: initial term with automatic renewal options, milestone-based extensions, performance-dependent duration, periodic review and renegotiation clauses. Shorter terms provide more flexibility but may discourage licensee investment.