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What is a License?

In intellectual property law, a license allows individuals or businesses to use another entity’s IP rights, in exchange for a fee, a royalty, or both. Without a licensing agreement in place, using someone else’s intellectual property without their permission can result in an infringement claim.

Companies are often able to generate a powerful stream of revenue from licensing intellectual property since some entities are willing to spend a lot of money to use another person’s intellectual property. Moreover, licensing allows businesses to expand their operations geographically, settle infringement claims, and sell certain aspects of the business while retaining their own IP rights. Licensing differs from assignment, which involves the full transfer of IP rights to another party.

Key Takeaways

  • Intellectual property licenses allow individuals or businesses to use another party’s intellectual property rights in exchange for monetary value.
  • Most types of intellectual property can be licensed, including copyrights, patents, trademarks, and trade secrets.
  • In licensing, the original owner of the intellectual property retains their rights, unlike in assignment.

Intellectual Property Licensing Agreements

Using someone else's IP rights requires a license, which is obtained by signing an intellectual property licensing agreement. This agreement is signed by both the IP owner (the licensor) and the party using the owner’s IP rights (the licensee). The contract typically stipulates the type of licensing arrangement agreed upon by the two parties as well as the terms of usage and the way in which the licensor will be compensated. Licensing agreements may also include the specific time period in which the licensee can use the rights, geographical regions within which the licensee may use the rights and other important limitations.

As an example, let's take a closer look at Netflix. This well-known entertainment company uses intellectual property licensing agreements frequently. Movie production companies may enter into a licensing agreement with Netflix that allows the streaming service to feature their movie for a certain amount of time. In return, the movie production company may receive royalties from Netflix.

Licensing Agreement Royalties

Licensing agreement compensation can be paid out in a number of ways, such as a lump sum, recurring fees or royalties. In relation to IP law, royalties are defined as legally-enforced payments made to an individual or business for the use of their intellectual property. Royalty payments are typically calculated by subtracting a percentage of the gross or net revenues obtained from the use of the intellectual property. Nonetheless, the exact guidelines for royalties are usually decided on a case-by-case basis. 

In a valid licensing agreement, royalty rates must be willingly executed. Simply put, the agreement must not be forced and benefit both parties involved. 

Bottom Line

Intellectual property licenses agreements are the perfect solution to anyone who wants to legally use the IP rights of another individual or business. These contracts often benefit both the licensor and the licensee. When drafting a licensing agreement, you should always consult an IP lawyer to ensure that the contract is completed correctly. Even the smallest mistakes in the agreement can have serious consequences on your business.

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