What is a license and why should you care?
License Defined.
A license agreement or licensing agreement occurs in any transaction in which the owner of a piece of intellectual property (“licensor”) grants another party (“licensee”) the right to use such intellectual property in exchange for monetary value in the form of a fee or a royalty, or both. For example, if you’re a fashion designer creating original prints and textiles, you want to license your IP rights (the original creations) to a larger fashion brand to sell on your behalf. This arrangement benefits both you as the licensor and the licensee.
Licenses and IP relationship.
But what exactly does Intellectual Property refer to? According to the WIPO definition, “Intellectual property refers to creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names, and images used in commerce”. IP can take many forms including but not limited to musical works, literary works, artwork, inventions, discoveries, designs, names, logos, legends, celebrity rights, trademarks, patents… IP is protected in law by, for example, patents, copyright, trademarks, trade secret, and publicity rights, which enable people to earn recognition or financial benefit from what they invent or create. IP is all about striking an effective balance between the protection of innovators and the general public interest. This system's main purpose is to promote an environment in which creativity and innovation can prosper by ensuring IP owners the protection and the benefit they deserve.
What makes licensing so popular?
The obvious answer to this question is that licensing allows people to profit in a more expansive manner. By entering into a licensing arrangement, you have the opportunity to generate additional royalty income. For the owner, the advantages of licensing are essentially the economic and financial profit that one will obtain from the licensing of one’s asset while avoiding having to manage its exploitation. In addition, if you are the property owner, you will also obtain many secondary benefits by licensing, such as providing additional exposure for the underlying products or services, obtaining better leverage for advertising expenditures, expanding into new markets, strengthening the licensor’s underlying trademark rights by expanding the breadth of the goods or services on which the brand is used, and so many other possibilities depending on the nature of the agreement.
Benefits to the Licensee.
Licensing is inherently beneficial to the licensor but there are also many benefits to the other party (licensee). First, the licensee will benefit from the reputation of the licensed intellectual property. Several secondary benefits to the licensee include creating instant credibility and reputation through the use of a well-known trusted brand or property. Second, the licensee saves time and cost of building a brand from scratch, allowing the manufacturer to create a product line that will have instant recognition and appeal to retail buyers. A third benefit to the licensee is the ability to build relationships with growing brands and creatives. This support allows for more business possibilities in the future as well as mutually beneficial financial gain.
Examples of Licensed Trademarks and Licenses
Licensing properties can fall into a number of different categories, such as music, entertainment, fashion, celebrities, and corporate. Many marks that surround us every day have used licensing to gain their notoriety and reputation.
For instance, Coca-Cola has acquired its popularity thanks to its licensing program. More than 300 different licensees have manufactured thousands of products, and some of them were not even related to soft drinks (clothes, beach towels, hats, jewelry…).
Blockbuster Hollywood motion pictures produced some of the most successful licensing programs for properties related to entertainment, such as the Star Wars films, the Harry Potter saga, and motion pictures based on superheroes. The omnipresence of cell phones, video games, and screens has expanded the licensing of entertainment properties, which can now include products such as phone cases or screensavers.
Many fashion companies such as Ralph Lauren, Chanel, L’Oreal, and Gucci, have also used licensing to increase their brand reputation and to build their image online, both for original core products that most know them for and for expanded products such as fragrances, beauty, and jewelry.
Contracts and Licenses
License agreements. A license agreement is actually a legal and binding contractual document. The type of license agreement being used will depend on the type of intellectual property involved. For example, “technology licensing” or “patent licensing” concerns any license agreement that covers a patent or a technology. This applies to “trademark licensing”, “software licensing”, “brand licensing”, and “character licensing” which refers to any character from a book or motion picture being licensed by a third party.
What terms should be included in my License Agreement? Under a license (or licensing) agreement, you will find various contractual terms, including but not limited to the following:
“Property” or “Licensed Property”
This refers to the intellectual property being licensed. Similarly, “licensed products” or “licensed articles” refer to the products for which the license is being granted.
Exclusivity
An “exclusive license” differs from a “non-exclusive license” as the licensee is the only party receiving the right to use the licensed property for the licensed products mentioned in the license agreement. Conversely, a “non-exclusive license” allows the licensor to make any similar grant to a third party or third parties.
Territory
A “licensed territory” is a license that restricts the licensee’s use of the property being licensed to a particular geographic area. Most licenses contain this clause.
Royalties/Compensation
The most common form of compensation in licensing is the payment of “royalties” to the licensor, which constitutes a percentage of the licensee’s sales of the licensed products.
In Summary
A license agreement is an effective tool that allows an IP rights owner to maximize the profits his or her assets can generate. Given the significance of these agreements, they must be written with extreme precision and carefully tailored to each specific situation.
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written by Clémence Chollet, JD; LLM