Experienced Technology Attorneys
In today’s information-based economies, the fundamental model of Intellectual Property collaboration among businesses and academic organizations pioneering for innovation is based on licensing agreements established among the varying participating partners.
The tech industry is often regarded as the backbone of the current global economy, with many centers of technology set around the world. Regardless of size, technology companies need to address the protection of their most valuable asset: their Intellectual Property (IP).
Intellectual Property is a broad concept that includes various intangibles. For the most part, there are four main categories of IP:
- Patents – A government will grant a patent in exchange for the full admission of the product to the public. A patent will allow the inventor the right to keep another party from inflicting on the property for a number of years, thereby allowing the inventor the opportunity to make a profit from the product. Generally, when a patent has been disclosed, other parties will improve on the product, ultimately pushing the technology and trade forward.
- Copyrights – A copyright can only be used to cover non-functional features of a creation. Copyrights can be used in conjunction to protect an invention where the copyright will cover the wording of a program and a patent can protect the use of the program.
- Trademarks – A trademark is a distinguishable word, design, phrase, or symbol that is used to identify a certain product. Under certain cases, a trademark can be long lasting.
- Trade Secrets – The United States Patent and Trademark Office has defined a trade secret as being any information about a product that sets the company at an advantage over competing companies. The value of a trade secret lies in the product’s unknown properties. This means that the protection of such item will only last as long as the trade secret remains a secret, otherwise, protection can be long lasting.
A Brief Overview on Technology Licensing and Why Licensing is Important
As there are varying kinds of IPs, there are also varying forms of Technology Licensing agreements. As a form of contractual arrangement, technology licensing will allow a licensor’s intellectual property to be made accessible or sold to licensees for compensation. It allows technology companies the opportunity to not only monetize but also distribute their intellectual property. A licensor’s property could pertain to any of the previously named IPs: trademarks, patents, trade secrets, or copyrights. Any compensation made from this property can be in the form of a lump sum payment, be based on the amount of production, or encompass a combination of both.
The Benefits to Licensing Your Intellectual Property
Licensing intellectual property is a common practice and it is for good reason. A property holder is not always in the position to sell and distribute the property. When the proprietor is particularly young, it may not have the resources to commercialize the intellectual property. Larger companies, however, are also in the business of authorizing idle IP to outside parties.
Technology licensing agreements can allow for profitability within the transaction under the following circumstances:
- It allows for expedited entry into remote markets while creating fewer legal and financial risks than managing foreign operations and/or participating in joint ventures;
- Technology licensing overcomes obstacles that can arise and result in the delay or obstruct the export of United States manufactured goods; and
- Licensing can also be used to acquire foreign technologies.
Preparing for Licensing Negotiation
In effort of adequately preparing for technology licensing negotiations, interested parties should answer questions that could help them understand what the license should cover. It is important to answer matters with respect to the opposing party’s position as well. The following are broad matters that should be examined before entering into negotiation:
- What business reason is the license being considered?
- What responsibilities should each party have?
- What is the time frame for entering into the agreement?
- What documents are needed in order to enter into the agreement?
- Is there any other data that should be collected before entering into agreement?
- What are important positions on key issues about the license?
- Are preliminary agreements necessary?
It is important to discuss these matters before negotiating terms on the licensing agreement. Discussing these matters thoroughly will help to prevent future legal issues.
What Should Be Included In a License?
Before agreeing to license the IP, it is important to understand specific terms and conditions. The agreement can vary depending on the type of company.
- Terms and Renewal Preferences – The contract should include time frame matters such as the start date of the contract, how long the contract will last, and any other options for potential renewals and/or extensions. It should also include any forms of communications in which a licensee can notify the proprietor of the willingness to renew the license. Other important matters include, but are not limited to:
- Obligations that must be met by both parties following the termination of agreement;
- Any grounds on which the agreement can be terminated by; and
- Potential reversionary rights the proprietor may have the right to.
- Warranties – Licensees may inquire about warranties that are related to the ownership of the IP. It is in their interest to ensure there are no outstanding infringement claims and/or restrictions pending. Licensees may also want to guarantee that the IP performs as it is claimed in negotiations.
- Infringement – It is important to include what actions should be taken if claims of direct or indirect infringement are made. It should be made clear what party should be held liable for the costs to defend the claim.
- Forms of Payment – The main purpose of out-licensing is so that the IP developer can monetize the property. In order for this to reach its utmost potential, it is crucial to include any form of royalties in a technology license agreement. Nearly every agreement will include methods for initial payment and concurrent royalties. Payments can be made based on the profits earned from the IP, gross or net sales, units sold, minimum payments, etc. The following is an outline of factors that could influence methods of royalty payment:
- Gross Margin – The licensee will need to make a specific amount of gross margin on the item that is incorporating the IP into.
- Volume – Royalties can depend on pre-expressed volume levels.
- Exclusivity or Special Rights – If the licensor is granting the licensee with rights such as exclusivity and sub-licensing, the licensor may ask for higher royalties.
- Assistance and Support – If the IP license demands an instructional need in order to implement the IP in the form of documentation or actual service, this should be detailed in the technology license agreement under terms and conditions. Any forms of compensation for support should also be clarified.
- Performance Standards and Possible Quotas – In the event that the licensor is to be paid in terms of what the licensee produces, it is in the best interest of the property owner to establish a minimum payment. Licensors could compromise on an amount to be made, regardless of how much a licensee makes from the product.
- Quality Control – A recommended clause to include involves one that covers any standards set by the proprietor with regard to the property’s distribution, advertising, and production. It is suggested that contract include a means by which the licensor will be able to not only monitor but also enforce these standards. For instance, the IP proprietor could choose to have the right to assess the production and sign off on packaging designs and advertising materials relating to the IP.
- Duty to Protect the IP – Licensees, agents, and employees should reserve the confidentiality of the IP and be honest about the proprietorship of the product. All notices that should be included with items distributed under the IP license should be fully disclosed.
What a Technology License Attorney Can Do For You
Are you in need of support with technology licensing? Are you seeking to establish IP advancements but need legal support in protecting the property before commencing the process? If so, Attorney John P. O’Brien, technology licensing attorney can respond to any technology licensing queries you may have, support you through the licensing procedure, as well as help you prepare for all licensing negotiation developments.
At John P. O’Brien Law, our first and foremost goal is to provide efficient legal advice that can help avoid potential issues and unnecessary litigation. We have a comprehensive understanding of intellectual property laws and also know how existing licensing processes overlap in this particular area of law. We are here to help you develop product licenses that can protect the entirety of your intellectual property rights. We are committed to help you minimize potential business challenges and legal dilemmas.
About the Author:
John O’Brien is an Attorney at Law with 30+ years of legal technology experience. John helps companies of all sizes develop, negotiate and modify consulting contracts, licenses, SOWs HR agreements and other business related financial transactions. John specializes in software subscription models, financial based cloud oﬀerings, and capacity on demand oﬀerings all built around a client’s IT consumption patterns and budgetary constraints. He has helped software developers transition their business from the on-premise end user license model to a hosted SaaS environment; helped software develop productize their application and represented clients in many inbound SaaS negotiations. John has developed, implemented and supported vendor lease/finance programs at several vendors. Please contact John for a free consultation if you or the organization you work for is tired of trying to develop, negotiate and/or modify contracts and tech agreements of any type.
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