What to consider for your IP licensing agreement

Intellectual Property Rights reference an extensive range of privileges afforded to the owners of creative material, including rights in connection with trademarks, copyrights and patents, among other things. Owners of intellectual property (IP) have the exclusive right to exploit and sell their creative material. Whether it’s a song, film, logo, artwork or invention, IP owners are the ones who dictate how and when their work can be used.

Licensing is one way for owners of creative property to monetize and publicize their work, without completely transferring rights or ownership. An IP licensing agreement allows an IP owner (or the Licensor) to profit by lending certain usage rights to another (the Licensee).

BUT WAIT! Before jumping into that intellectual property licensing agreement, really think about the nuts and bolts of its terms.

Granting rights

Owners of IP dictate which rights are granted to their Licensees, and how, when and where those rights can be used. Owners may want to restrict the way the work can be used, the geographical location (worldwide v. specific region), as well as the length of time that the Licensee has such rights. For example, the owner of a song may limit a Licensee to use the material only in connection with one film, in the United States for two years. Granting and limiting rights is an important way for Licensors to control the way their IP is used, while still benefiting from the revenue that comes with an intellectual property license agreement.

What’s your consideration?

The payment exchanged for an intellectual property license can be structured in many different ways. Typically, licensing agreements provide for a flat fee, an ongoing royalty, a percentage of profits, or a combination of all three. Keep in mind that when dealing with percentage profits or fees accrued from sales, it’s important to establish a record-keeping mechanism and a means for verification, to ensure that payment provided by the Licensee is timely and correct. Otherwise you may find yourself without the cash you contracted for in the first place.