Canada’s Intellectual Property Firm

Licensing basics: part 1

Authored byAlistair Simpson

To license or not to license? In simple terms, an IP license is the permission granted by an Owner of IP rights (known as a “Licensor”) relating to some type of subject matter (eg. a trade mark, an invention etc.), to a Third Party (known as a “Licensee”). The permission allows the Third Party to use and/or otherwise exploit the IP in a particular manner.

The Owner and the Third Party must first grapple with the issue of whether a license is the most appropriate mechanism to achieve the business objective.

For example, instead of licensing the IP, the Owner may be better off selling the IP to the Third Party. A Third Party may also be better suited by such an arrangement.

Alternatively, a joint ownership arrangement might in some circumstances be more advantageous for the parties.

The Owner should also consider whether a different type of arrangement altogether would be best suited to the particular situation. For example, would it be better to transfer the IP rights into a Joint Venture or similar vehicle, which can exploit specific IP rights in a particular way on behalf of the Owner and Third Party?

Who is being licensed? Once it is determined that a license is the most appropriate arrangement, the Licensor and Licensee need to precisely determine the parties that will be licensed. The Licensor should, of course, have a sufficient degree of comfort and trust in the party or parties he is licensing.

Aside from the specific party named as Licensee, other related parties may acquire rights under the license. For example the Licensee may wish for “subsidiaries” and possibly “affiliates” to also be licensed. The Licensor must be careful to consider how far the rights could flow in relation to such related parties. It is probably trite to state that it is usually important for the Licensor to maintain a level of control over who is exploiting the IP rights.

Another issue arises in a patent and/or technology license, where the Licensee may wish for a “have made right” enabling the Licensee to have the technology made by another party. The Licensor, may however, have good reason to be concerned if certain third parties can gain access to the technology because they are contracted to make licensed products for the Licensee.

Additionally, it must be recognized that a Licensee may often wish to be able to sub-license others. It is simply noted here, that sub-licensing to third parties raises a myriad of additional issues the need to be addressed in the written agreement.
Finally, while it’s another topic to be dealt with in detail elsewhere, the Licensor also needs to consider issues relating to assignment and devolution of Licensee’s rights under the contract by the Licensee.