The most common transaction involving IPRs is licensing whereby the licensor retains the ownership of IPRs but allows the licensee to use the rights. Licensing-out may well be the route pursued by an innovative company with an invention but without the resources to exploit it unaided. Conversely, licensing-in may be pursued by a larger business with the commercial muscle or resources which equip that business to promote the technology or products or services incorporating the IPRs of others.

If you are negotiating the right to use an intellectual property right (IPR), it is necessary to agree the terms upon which the IPRs concerned are to be licensed.
These include the following:

Subject Matter: A preliminary issue is to identify and define precisely the subject matter of the licence . Some products or services involve a single IPR (e.g. copyright in a computer program) but, especially in the case of technology transfer, a bundle of IPRs may need to be licensed in order to allow the licensee to exploit that technology (e.g. patents, know-how and trademarks).

Extent of the Licence: It will be necessary to consider the extent of the licensee's rights. This may include: Whether the licence granted is exclusive , sole or non-exclusive; whether the licensee can sub licence the IPRs to others; the geographic territory; and the extent of the permitted end-use of the IPRs, (e.g. within a particular market sector or limited to a specific application of the IPRs).
A further critical requirement for the licensee will be his ability to defer the licensed IPRs against infringement by third parties.

Improvement and Upgrades: Technology based deals may involve improvements and upgrades. This necessitates contractual provisions covering the ownership of such improvements and upgrades; the flow of information between the parties; the right of each party to use such improvements; and whether or not such use is subject to further payment.

Warranties: The licensor may warrant that the technology is effective and safe and that he owns the IPRs and may also offer to indemnify the licensee in the event that a third party suing for infringement or damage resulting from a breach of such warranties. These warranties may well, however, be restricted by the licensor.

Duration: A licence can, at most, only last as long as the IPRs in question. Hence, where a bundle of IPRs is being licensed, royalties for each IPR should be separately stated so that royalties for continuing IPRs are payable after one IPR has expired.

Termination: A termination of the licence may take place: By agreement upon notice; if an important term is broken; or in the event of the insolvency; or change of ownership or control of one of the parties. In addition, you should address the respective rights and obligations of licensor and licensee after the relationship has ended.

Dispute Resolution: Possible dispute resolution alternatives include litigation in the law courts, arbitration and alternative dispute resolution. You must also agree which national law will apply as to the interpretation and enforcement of the contract.

Registering the User: With registered IPRs, any licences granted should be notified to the appropriate Registry of the Patent Office within six months of the agreement. Failure to do so prejudices the licensee's rights to protect the IPRs.

Licence Fee

In return for the licence of IPRs, the licensee will normally pay a royalty, a lump sum or combination thereof. If the licence is part of a wider deal e.g. long term supply, then the royalty may be built into the cost of the goods under the supply contract .

The level of licence fee will depend on a number of factors including:
The degree of exclusivity granted;
the state of development of any technology;
the strength of the IPRs;
the licensee's access to upgrades;
the going rate for such IPRs;
and whether both parties willingly entered into the deal or if it was forced on the licensee as part of a settlement of a dispute over ownership of IPRs.

Tax and Accounting: How IPRs are transferred and paid for may have important tax and accounting consequences. Where payments are related to levels of sales (e.g. royalties), they are likely to be treated by the Inland Revenue as income. However, if the IPRs are disposed of outright (assigned) or where money is received by way of a lump sum, this receipt is more likely to be treated as capital.

Licensing in Europe

If your business is involved in licensing-in or licensing-out technology or other intellectual property rights, you will be aware of the need to bear in mind European Community laws which can effect such transactions, as agreements which have the potential to effect trade within Europe.

The easiest way to avoid such problems is to ensure that the proposed agreement only contains terms that are acceptable under the ‘block exemption’ that related to the type of agreement in question. Compliance with a block exemption allows parties safely to enter into an agreement that might otherwise need to be notified to the Commission for individual exemption.
There is a block exemption that covers licensing but unfortunately it only deals with patent and know-how licences. In addition it is considered to impose restrictions that do not seem to be economically justified. The Commission appears to have recognised this and is looking to rationalize the block exemption coverage in this area.

The main proposed changes are as follows:

Extending the application of the exemption from patent and know-how licensing agreements only to those dealing with other intellectual property rights such as trade marks, copyrights and designs;
Extending the exemption to licensing pools, a common route for the commercialisation of new technologies;
Adopting a more lenient approach towards licensing agreements between non-competitors whilst keeping a close watch on arrangements between competitors taking into account their market power and the structure of the relevant market