Licensing your idea

License Agreements

How to get someone to buy your idea from you without the expense of setting up a business..

A license is a contractual right that gives someone permission to use certain intellectual property (IP) that is owned by someone else. A license allows the holder of IP rights (the "licensor") to make money from an idea by charging a user (the "licensee") a fee or royalty to use the licensed IP. In this article, we refer to license agreements in the context of selling your IP rights to a product – this is not to be confused with buying a software license!

Giving someone a license to use your IP is relatively straightforward. In business, a written license agreement is essential to enforce your rights, but it doesn't have to be long or complicated. Before you negotiate a license agreement, it is very important to make sure that you have applied for exclusive rights to that IP. The best way to guarantee exclusive rights to intellectual property is to submit an application for a patent, a design registration or both.

You need not wait for your IP rights to be fully granted before approaching industry. Once you have a pending patent (or design registration), you should waste no time in taking full advantage of this ‘free’ period of IP protection. Though a pending patent is not formal legal protection, the most beneficial rights gained by applying for IP protection in terms of licensing are available from the day that you receive your filing date. By approaching industry early, before paying your patent investigation fees or looking at international applications, you could negotiate a deal whereby the licensee covers these costs.

It is also very useful for potential licensees to sign a non-disclosure agreement (NDA), requiring them to keep your idea confidential. Usually, these should accompany your IP rights as an extra form of protection. However, because NDAs are civil law agreements, they are arguably a more powerful and far-reaching form of protection in the context of selling your idea. Though IP protection will be invaluable for safeguarding the product once it is on the market, an NDA can be a significant boost when negotiating a license agreement.

What should the agreement include?

A license agreement would typically be non-exclusive, meaning that the licensor can sell the same rights to other users. Next in importance are recurring payments such as royalties.

Other topics to cover include:

  • Term (the length of the agreement)
  • Rights to modify and combine with other products, if any
  • Rights to transfer and sublicense
  • Terminating the contract
  • Indemnity for infringement
  • Geographical area covered, i.e. which countries can the manufacture sell the product in
  • Nondisclosure of confidential Information

Many issues can arise during the drafting a license agreement, and the laws relating to intellectual property can be complicated. You should involve licensing practitioner in the drafting of a license agreement. Contact The Institute of International Licensing Practitioners for further advice: IILP Website

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