Fundamentals of Licensing
Updated: Aug 20, 2021
The objective of intellectual property (IP) law is to protect the creators of intangible property by granting them exclusive rights. At the same time, there is an onus to ensure that the public is not at a disadvantage due to the exclusivity granted to any creation. To remedy this issue, the concept of licensing is recognized.
Licensing refers to an agreement between two parties, where one party grants to the other, the right to use their IP. The first party is the owner of the IP and is known as the licensor. The second party is usually not involved in formation and registration of the IP, and is known as the licensee. The agreement grants the licensee the rights to use the licensor’s property in exchange of payment in the form of royalties.
TYPES OF LICENSES
There are three primary types of licensing agreements.
1. Exclusive License: It grants an exclusive right to a third party to use his property. In such a situation, the IP owner themselves are barred from using the property or issuing any other licenses.
2. Non-Exclusive license: While this license also grants the right to use the owner’s property to a third party, there is no limitation on the owner’s use of the same property or their right to issue other non-exclusive licenses.
3. Sole license agreement: Under this, the owner may issue a license to a third party and continue using their property. But they do not hold the right to issue any other licenses.
Custom licensing agreements are formed which usually merge the features of the agreements to best suit the requirements of the parties.
LICENSING REGULATIONS IN INDIA
The licensing agreements of different IPs in India are governed by separate statutes. The most common forms of IPs which are licensed are Trademarks, Copyright and Patent. These licensing agreements are termed as Franchise license, Copyright license and technology license respectively.
TRADEMARK ACT, 1999
Section 48-55 states that an agreement between a registered user (licensee) may permit a third person to use their registered trademark.
COPYRIGHT ACT, 1957
Section 30 provides for a written licensing agreement signed by the owner or their agent. The Act provides for Voluntary and Compulsory licenses. The latter is granted by the copyright board in situations where the owner refuses to:
- Perform the work in public.
- Communicate the work to the public by recordings/broadcasts.
PATENTS ACT, 1970
Sections 84-92 provide for licensing of a patent. The licensing agreement must be in writing and the licensee must be registered with the Controller. Section 84 provides for compulsory licensing in situations beneficial to public health or during National Emergencies.
ESSENTIALS OF A LICENSING AGREEMENT
Though every licensing agreement is unique owing to the IP being licensed, there are certain provisions common among them. These are as follows:
Scope of the license: This includes the rights and duties being transferred through the license with respect to the IP in question. Concepts such as territoriality and exclusivity would fall under this.
Term: Specifies the time period for which the license is valid.
Confidentiality: This clause ensures any trade secrets or other confidential information, obtained through this licensing agreement, is not disclosed by the licensee.
Financial arrangement: Discusses the royalties to be paid and the acts with reference to which any payment has to be made.
Quality control: Considering licensing involves sharing one’s product with another, ensuring quality standards becomes a major requirement. This clause allows the licensor to sign off on all brands and quality standards before anything is finalised.
Infringement: This clause discusses the consequences in case of infringement of any of the terms.
Transferability: This clause expressly permits or barrs the transfer/assignment of the license being granted.
Warranties and Indemnity: Contains details of prevention of a loss and/or compensation for the loss to the licensor as well as licensee.
Legal recourse: Provides for options through which any legal dispute or conflict can be resolved.
BENEFITS OF LICENSING
1. No costs of producing, promoting, packaging, or selling.
2. No risk of entering into the market as a new entity.
3. Easy income through Royalties.
1. No risks in product development.
2. Efficient market entry.
3. Easy manufacturing and distribution.
Licensing of IP is an essential provision under the IP Laws. The objective of IP law is to grant exclusive rights to the author/creator of an IP, since it involves their hard work and diligence. But it also recognises the commercial value of these rights. Further, licensing is designed to reduce the risks involved in doing business for everyone involved.
A Checklist for Negotiating License Agreements, http://www.iphandbook.org/handbook/ch11/p11/
LICENSING FUNDAMENTALS, http://cambridgetechlaw.com/resources/licensing/
Richard A. Epstein, Omri Ben-Shahar & Jonathan S. Masur, The Licensing of Intellectual Property, 78 U. CHI. L. REV. 1 (2011). .
The Copyright Act, 1957, No.14, Acts of Parliament, 1957 (India).
The Designs Act, 2000, No, 16, Acts of Parliament, 2000 (India).
The Patents Act, 1970, No. 39, Acts of Parliament 1970, (India).
Trademark Act, 1999, No. 47, Acts of Parliament, 1999 (India).
World Intellectual Property Organization, Wipo National Seminar On The Protection Of Trademarks And Geographical Indications, WIPO/TM/BEY/03/6 (2003).