Intellectual property law is a very crucial topic, yet not a lot are familiar with the process of applying for a patent, trademark, or license. Far from what a lot of people think, the United States Patent and Trademark Office (USPTO) processes a lot of applications from inventors wanting to get ahead of a competitor. Because virtually all new inventions can be patentable, knowledge of intellectual property laws is crucial. Patents and trademarks, however, do not matter only to an inventor. Any licensing agreement (and all elements that constitute such) must be under and is essentially part of, a diverse area called copyright law.

A licensee is someone seeking to use the intellectual property rights of another for a specific period. A licensor, on the other hand, is the party granting rights for intellectual property or licensed products to licensees.

Knowing the obligations of each party and what is prohibited and allowed under relevant copyright laws is key. Like any other legal agreement, a party can sue you for any legal issue that comes with invalid license agreements. To avoid this, it is helpful to know these 8 do’s and dont’s, both for when you want to license rights or are planning on licensing rights to another.

  • Do exercise diligence when knowing your licensor

Keep in mind that not all licensors are made equal. If a license agreement turns out to be invalid, the royalties you have been paying could essentially just be for nothing. Try to look them up on the Internet, if they have been involved in anything that is not under the copyright act. Be cautious especially if it is your first time dealing with copyrighted material.

  • Don’t settle for a vague description of the rights being licensed

If a licensor agrees to grant a licensee certain rights, specific license terms may be imposed. While this is part of his or her legal rights, such terms and conditions must be clearly stated in the license contract. Both licensor and licensee, upon signing, must follow these terms the way they were detailed.

  • Do clarify every limitation specified in the license

Licensing AgreementsBeing granted the right and license to use a trademark is rarely absolute. Oftentimes, intellectual property rights are to be used only in limited product categories. These can vary from party to party. Clarifying which items, whether manufactured and/or sold by the licensee, are included in the contract will help minimize complications.

  • Don’t ignore provisions on geographical and temporal limits

Licensees shall only use license agreements in the state or country that is agreed upon. Comply with these provisions to prevent having the license agreement with the other party terminated. Similarly, remember that a license agreement is seldom perpetual. Exclusivity, expiration, and renewal terms must be specified in the licensing arrangement, in case both parties agree to renew it.

  • Do take note of revocable or irrevocable clauses

Take note that a license grant may be revoked, and events or violations that will lead to such revocation must be included in the licensing contract. Revocation, along with other licensing terms, is according to relevant copyright and intellectual property laws. As such, they must be taken into account. You may try to negotiate, but you shall not try to use the license beyond the manner you are entitled to. 

  • Don’t be complacent when it comes to discussions on royalty

When licensing fee becomes the subject matter, negotiation is key. A license fee is often composed of an initial payment and annual or monthly payments, which are represented by fixed amounts. Some licenses, however, require an initial payment and variable payments (based on commercialization success) made regularly. The latter is often based on net sales, which depends largely on the performance of the licensed product in the market.

  • Do ask about updates when dealing with a software license agreement

Although governed by the same laws, software licensing is a bit different. Check for software license agreements that include the right to get updates, which are often newer versions where bugs have already been fixed. Including updates often improves the merchantability of certain licensed software, so there is a high likelihood that such are included. However, this also depends on the nature of the software product, so make sure to ask and clarify early on.

  • Do not take possible indemnification issues for granted

The notion of indemnification is meant to protect both parties from any wrongdoing of the other party. This is essentially an added legal protection mechanism that would indemnify a licensor from unauthorized use or misuse of the licensee, or a licensee from infringement claims asserted by third parties. When you use a license agreement for something unlawful, you will be liable for issues arising from your actions.

Drafting, accepting, or the termination of a licensing agreement are a lot more complicated than they seem. Before you draft, distribute, sign, or terminate a license agreement, make sure you have a trusted IP lawyer with you. He or she can explain in detail what the terms expressed or implied and what a nonexclusive or exclusive license means, among other things. As the words derivative, confidential, proprietary, and jurisdiction shall mean differently in connection with a user license agreement, they must be taken seriously.

For clarifications on the above or for questions on the patent license agreement, trademark license agreement, nonexclusive license, or exclusive license agreement, talk to us at War IP Law, PLLC. Call us at 202-800-3754 for an initial consultation.