Licensing agreements may be one way for you to expand your business and create company value. Use of a particular technology in a business that you had not previously considered may allow you to expand your business without creating a new competitor. Having additional people selling your products may allow you to expand geographically or into different markets without the additional overhead and risk.

What is a licensing agreement?

A licensing agreement is a special agreement whereby one party (licensor), in exchange for a value, gives permission to another party (licensee) a do a certain activity or to use certain property. Without protecting your IP, it will be very difficult to interest others in your licensing your IP.

IP can be used both offensively and defensively. The key is to use it to either grow into a new business area or to protect your own. Once you have filed an application for protecting your IP, you need to clearly understand its potential both for protecting and growing your business. For example, if you are interested in entering a new market area, you should identify the market players and understand their IP. This process will allow you to then identify any complimentary skills or IP that these market players may have. You could then explore the possibility for combining your resources with those of the market players. It may then be a good idea for you to contact the person in the company who is responsible for receiving new potential inventions/ideas. Based on this individual’s response you may want to decide on your strategy of how much to disclose to the company. In any case, it is always important to get a non-disclosure agreement in place if you do end up sharing your IP in a meeting or conversation. Once you get a positive response from the company, you can give an outline of the license terms, "a term sheet", "letter of intent" or a "heads of agreement" to the company.

Exclusive vs a non-exclusive license:

Some issues to consider in a licensing agreement are: non-exclusive vs. exclusive. Under a non-exclusive license, the licensor can sell the same rights to others. On the other hand, under an exclusive license, the licensor provides exclusive rights to one licensee. The determination for giving exclusive or non-exclusive rights in a license agreement depends on multiple factors such as the type of IP, type of the product or service, etc. Other factors include- length of the agreement (term); rights to modify or combine with other products, (if you want to use the IP to make a combination product with your own product); non-disclosure of confidential information; prohibited use; assignment, distribution of product, diligence, transfer and sublicense rights; acceptance, testing and training; warranties; limitations on the licensor’s liability; support and maintenance services; insurance, indemnity for liability, indemnity for infringement; enforcement of remedies; and termination.

On a financial level, you may consider including appropriate royalty, an upfront license fee, patent cost reimbursement, and patent maintenance costs. Other financial terms that may be added to the licensing agreement are equity, annual maintenance fees, and milestones.

Drafting a licensing agreement?

While the best scenario is that a legal professional draft the licensing agreement from start to finish, another option is that you start on your own and an attorney reviews it and finalizes it. You can find examples of licensing agreements in a local law library or on the Internet. For software licensing agreements, one could look at the agreement on software you currently own.

For additional Information, visit:

http://www.iphandbook.org/index.html - A website containing sample agreements and general discussions/resources about IP