Licensing intellectual property
A licence is an agreement between you as the IP right owner and another party. It grants them permission to do something that would be an infringement of the rights without the licence.
IP can be “licensed-out” or “licensed-in”. You can “license-out” to another company in return for a fee. You can “license-in” if you want to use another company’s IP to develop your own business and products. The person granting the licence is usually called the licensor, and the person receiving the licence is usually called the licensee. There may be more than one licensor or more than one licensee in a licence agreement.
Benefits of licensing
Sharing costs and risk – where a company licenses the right to manufacture and sell products, the licensor receives revenues from that licensing but does not take the risk of manufacturing, promoting and selling those products. On the other hand, the licensee has the right to use the IP without the expense and risk of the research and the costs of developing the product.
Revenue generation – licensing can broaden the reach of IP into different markets.
Increasing market penetration – an owner of IP may license another business to sell in territories that the owner cannot cover.
Reducing costs – a business may ‘buy-in’ innovation to reduce its research and development costs.
Saving time – a business may get its products or services to market more quickly by acquiring a licence to use existing IP, instead of re-inventing the wheel (sometimes referred to as an “engineering workaround”).
Accessing expertise – by taking a licence, a business may tap into expertise that it does not have in-house.
Obtaining competitive advantage – by acquiring a licence to use IP, a business may obtain an advantage over its competitors.
Collaboration – businesses may want to work together to develop new products and services. Whenever you think about taking or granting a licence of any IP, the first step should be to assess the needs and objectives of your business and how licensing might help meet them.
When granting or taking a licence isn’t appropriate
- if you have the ability to commercialise your own IP, you might be better off doing it yourself
- you should be wary of licensing your IP to companies who might lessen the value of the IP. For example, if you are licensing a trade mark you will want to consider whether the quality of your brand will be affected by the goods it is applied to
- the prospective licensor may want to charge royalties that are too high and may restrict the growth of the business
- the IP to be licensed may be too weak – if a competitor could work round it and take away market share, it may not be worth investing in a licence
Patents and ‘licences of right’
The IPO has a database of patents that are endorsed ‘licence of right’. This means that the patent holder has agreed to licence their patent to anyone who asks. You can search the database for patents endorsed licence of right to use the technology for your innovation or business.
If you have a patent, you can ask the IPO to endorse your patent with a licence of right in the register of patents. This means that you must grant a licence to anyone who wants one.
The licence will still be an ordinary, commercial licence and the terms and fees will be a private matter between you and the licensee or licensor. The IPO won’t investigate the validity of a licence unless you can’t agree the terms under a licence of right.
The main advantages of having your patent endorsed with a licence of right is that it lets other people know you are happy to licence your intellectual property. The IPO reduces its annual renewal fees to half the usual cost if your patent is endorsed licence of right.
To apply for a licence of right endorsement, fill in Patents Form 28. Your application should reach the IPO at least 10 working days before your next renewal fee is due. If you would like to licence any of the IP on the database, you will have to approach the licensor directly. You can find the patent owner’s contact details in the database.
You can cancel a licence of right endorsement at any time by filling in Patents Form 30. You will have to pay the standard renewal fees, which will be backdated to your renewal date.
The IPO will advertise your cancellation request in the Patents Journal for 4 weeks to allow anyone to oppose your cancellation request. Your licence of right entry will be cancelled:
- if there are no existing licences
- you have paid the balance of renewal fees
- any opposition to the cancellation has been dealt with
You don’t have to tell the IPO if you grant a licence, but it’s better if you do. You should do this within 6 months. The licensee may lose some rights if you don’t. The licensor usually tells the IPO by completing and signing Patents Form 21 stating the type of licence. If the licensee tells the IPO, they will require additional information:
- the date of the agreement
- the names and addresses of the parties involved
- the patent number
We recommend you always seek professional legal advice when entering into a contract.