An intellectual property licence agreement describes how and when a person is granted rights to use intellectual property. The licence agreement may also set out the purpose for which IP can be used and when the licence comes to an end.
Anyone who owns intellectual property must ensure that they carefully word IP agreements. One wrong word and you could be giving up commercially valuable rights or not receiving the rights you require.
In the article, our contract lawyer explains what an intellectual property licence agreement is, key terms and answers some commonly asked questions.
What is a licence to use intellectual property?
A licence to use intellectual property gives someone a limited right to use the intellectual property. There are many ways a licence agreement can be used, for example:
- a licence may be so broad its nearly the same as owning the IP
- Certain conditions must be met in order to have the right to use IP.
- there may be a royalty payable in exchange for the right to use IP
- One party may transfer ownership to another, but the original owner receives a license.
Key considerations for an intellectual property licence
Intellectual property is often unique and has some commercial value. Examples of highly valuable intellectual property are:
- software code for software that is licensed to millions of people across the world
- highly recognisable trade marks, logos and brands
- a successful book
- a podcast with millions of downloads
5. specially designed products or parts for essential goods that are sold around the world
It’s easy to see that, if the words of an intellectual property licence agreement are not properly drafted, the value of the IP may be lost. It may also be unintentionally given to someone else.
Does the person granting the licence have a right to grant the licence?
A person cannot give a right to use intellectual property that they either:
- don’t themselves own; or
- have a right to sub-licence (for example, because they are themselves subject to an IP licence agreement).
Some types of intellectual property may be registered, such as a trade mark. However, other types of IP may not be so easy to confirm who owns it. For example, a person may appear to own copyright in a design but they may have transferred ownership to someone else.
None of this is recorded on a public register or available to check.
Contract lawyers solve this issue by adding warranties and indemnities to an intellectual property license agreement. The person granting the licence will warrant (i.e.
promise) they own the IP or have the right to grant a licence. If this promise is broken, the person then has to indemnify (i.e. reimburse) the other person who was granted the licence.
Correctly identify the person that is receiving the licence
Ensuring the correct identification of the licensee is fundamental to the integrity of any IP licence agreement. The licensee is the party granted the rights to use, exploit, or benefit from the intellectual property.
If a license agreement doesn’t accurately describe who gets the rights, it may not be enforceable.
The agreement needs to clearly state who will receive the rights to the intellectual property. This could be a person, company, or organization.
For individuals, provide your full name and address. For companies and businesses, include the ABN or ACN. I recommend hiring a contract lawyer to check the party’s legal name.
Start and end date for the intellectual property licence
A licence should have a clear start and end date. This does not necessarily mean that you have to specify the day, month or year. The license begins on a specific date or when a condition is met or an event occurs.
The same goes for the end date. Will then licence end on a specific date or will it apply forever provided that certain conditions are met?
An example of this is a publishing agreement. The publisher can use the author’s works for publishing without a specific end date. If the book doesn’t sell for six months, the author can end the agreement and the intellectual property license.
What limits are placed on commercialising the intellectual property?
IP licence agreements may allow the licensee to use the IP in any way they wish. The IP owner desires to control the usage and profit generation of the intellectual property. For example, is the licensee only allowed to use the IP for internal business purposes, or can they sell or adapt the IP and make money from it?
I’ve seen lots of agreements that let you use intellectual property in exchange for something. This might be royalties, a right for the owner to share in profits or receive the benefit of any improved IP. An intellectual property licence agreement will often involve both parties receiving some sort of benefit.
Frequently asked questions
Intellectual property is the unique and creative output of the mind. An idea is not just the artistic or other creative representation of that idea.
As an example, an idea to write a book is not IP. However, the written words on the page (being the creative expression of the idea) is copyright and capable of legal protection.
An IP licence agreement will only protect confidential information if it includes confidentiality clauses. A difference exists between having a right to use IP and having an obligation not to disclose the IP to others.
We suggest hiring a contract lawyer who knows about intellectual property contracts to create your license agreement. Using free online templates for contracts can be risky if you don’t understand the clauses or how the contract works.