A licence is permission from the holder of an intellectual property right to use that right, on terms, while ownership stays where it is. Three choices define it. Whether it is exclusive, sole or non-exclusive – that is, whether the licensor may grant further licences and whether it may still use the right itself. Its scope: which right, for which products, in which territory, for how long, and whether sub-licensing is permitted. And the consideration: a lump sum, a royalty per unit or a share of turnover, with the audit rights that make a royalty verifiable.
One formal point catches parties out. Under the Copyright Act an exclusive licence, like a transfer, requires a deed; an oral or implied exclusive licence does not have that effect.
Intellectual property and the licence
The results of mental labour are called intellectual property rights. The different kinds of rights differ in nature, handling and duration. Examples are copyrights, trademark rights, patents and trade names. These rights are so-called exclusive rights, which means that third parties may only use them with the permission of the person who holds the rights.
This allows you to protect elaborate ideas and creative concepts. One way of granting permission for use to third parties is by issuing a licence. This can be given in any form, either verbally or in writing. It is advisable to lay this down in writing in a licence agreement. In the case of an exclusive copyright licence, this is even required by law. A written licence is also registrable and desirable in the event of disputes and ambiguities regarding the content of the licence.
The content of the licence agreement
A licence agreement is concluded between the licensor (the holder of an intellectual property right) and the licensee (the one who obtains the licence). The core of the agreement is that the licensee may use the exclusive right of the licensor within the conditions stated in the agreement. As long as the licensee adheres to these conditions, the licensor will not invoke his rights against him. In terms of content, therefore, there is much to be regulated in order to limit the licensee’s use on the basis of the licensor’s limits. This section describes some of the aspects that can be laid down in a licence agreement.
Parties, scope and duration
Firstly, it is important to identify the parties in the licence agreement. It is important to consider carefully who is entitled to use the licence if it concerns a group company. In addition, the parties must be referred to by their full statutory names. In addition, the scope must be described in detail. Firstly, it is important to clearly define the object to which the licence relates. For example, does it only concern the trade name or also the software? A description of the intellectual property right in the agreement is therefore advisable, as well as, for example, the application and/or publication number if it concerns a patent or trademark.
Secondly, it is important how this object may be used. May the licensee leave sub-licences or exploit the intellectual property right by using it in products or services? Thirdly, the territory (for example, the Netherlands, Benelux, Europe, etc.) in which the licence may be used must also be specified. Finally, the duration must be agreed, which may be fixed or indefinite. If the intellectual property right concerned has a time limit, this should also be taken into account.
Types of licences
The agreement must also state what kind of licence it is. There are various possibilities, of which these are the most common:
- Exclusive: The licensee alone acquires the right to use or exploit the intellectual property right.
- Non-exclusive: the licensor can license other parties in addition to the licensee and use and exploit the intellectual property right itself.
- Sole: a semi-exclusive type of licence in which one licensee may use and exploit the intellectual property right alongside the licensor.
- Open: any interested party who meets the conditions will receive a licence.
Often a higher fee can be obtained for an exclusive licence, but it depends on the specific circumstances whether this is a good choice. A non-exclusive licence may offer more flexibility. In addition, an exclusive licence may be of little use if you grant an exclusive licence because you expect the other party to commercialise your idea or concept, but the licensee then does nothing with it. Therefore, you can also impose certain obligations on the licensee as to what he must do with your intellectual property rights as a minimum. Depending on the type of licence, it is therefore very important to properly lay down the conditions under which the licence is granted.
Other aspects
Finally, there may be other aspects that are usually dealt with in a licence agreement:
- The fee and its amount. If a fee is charged, it can be a fixed periodic amount (licence fee), royalties (for example, a percentage of the turnover) or a one-off amount (lump sum). Periods and arrangements for non-payment or late payment must be agreed.
- Applicable law, competent court or arbitration/mediation
- Confidential information and confidentiality
- Settlement of infringements. Since the licensee himself is not legally entitled to initiate proceedings without authorisation to do so, this must be regulated in the agreement if required.
- Transferability of the licence: if transferability is not desired by the licensor, it must be agreed in the contract.
- Transfer of knowledge: a licence agreement can also be concluded for know-how. This is confidential knowledge, usually of a technical nature, which is not covered by patent rights.
- New developments. Agreements must also be made about whether new developments of the intellectual property are also covered by the license of the licensee. It may also be the case that the licensee develops the product further and the licensor wishes to benefit from this. In that case, a non-exclusive licence for the licensor of new developments to the intellectual property can be stipulated.
In summary, the licence agreement is an agreement in which a licensee is granted rights by a licensor to use and/or exploit intellectual property. This is useful in case the licensor wishes to commercialise his concept or work by another. One licence agreement is not like another. This is because it is a detailed agreement that can differ in terms of scope and conditions. For example, it may apply to different intellectual property rights and how they are used, and there are also differences in terms of remuneration and exclusivity. Hopefully, this article has given you a good idea about the licence agreement, its purpose and the most important aspects of its content.
Do you still have questions about this agreement after reading this article? Then please contact Law & More. Our lawyers are specialised in intellectual property law, particularly in the field of copyright, trademark law, trade names and patents. We are ready to answer all your questions and will also be happy to help you draw up a suitable licence agreement.
