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“Among the significant aspects of property or ‘ownership’ are the rights to determine the use of it... What has been referred to as ‘intellectual property,’...must therefore be capable of becoming the subject matter of agreements of various kinds–licenses, contracts and assignments.” – Frederic B. Schramm, Cleveland State Law Review, Vol. 9, Is. 1, Intellectual Property (A Symposium), Article 11, 1960
Licensing has two sides for reflection within the IP focus. Just as there are two sides—creators and consumers of IP— the same applies to licensing. In simple terms, licensing is where one party grants another party the right to use its property, often with certain conditions and limited rights. In other words, licensing is a contract or an agreement for some type of transaction between two parties.
According to Inc.com: "A licensing agreement is a legal contract between two parties, known as the licensor and the licensee. In a typical licensing agreement, the licensor grants the licensee the right to produce and sell goods, apply a brand name or trademark, or use patented technology owned by the licensor. In exchange, the licensee usually submits to a series of conditions regarding the use of the licensor’s property and agrees to make payments known as royalties."
Licensing is significant for inventors or small businesses as licensors if they plan to license their patented invention or trademarked product with a company to manufacture or to market their IP. Music licensing or computer software licensing are common too. Consumers may need to be alerted to the consequences of not heeding the licensing "click-through" agreements of such products. To negotiate, draft, and/or better understand such information technology licensing for B2B or consumers, see The Tech Contracts Handbook (American Bar Association) by David W. Tollen.
PATENT ASSIGNMENTS AND LICENSING
A patent, like real property ownership, can be sold, licensed, or transferred outright to another person. A patent owner could be the patent inventor or an assigned party, and this may be more than one inventor on a patent application. It is important to recognize inventorship versus ownership of a patent. Only the named person(s) may be listed as the inventor(s). Businesses may not be named as inventors.
Patent assignment occurs when an inventor has transferred patent ownership to another party. For example, hired-to-invent or an employee agreement in a professional work environment automatically assigns an employee’s inventions made within the scope of their related work for a company. It is customary for scientists at companies to sign employee agreements whereby all of their work-related IP, including patents, is automatically assigned to their employer. Therefore, a patentee has two primary ownership options on how to assign his or her patent rights:
1. A patent can be transferred or sold outright, by assigning all of its rights.
2. A patent could be licensed exclusively to one party only or nonexclusively to a variety of parties.
The patent law in the United States permits the transfer or sale of a patent, or of an application for patent, by a documented means known as an assignment. The assignee becomes the owner of the patent and acquires the same rights that the original patentee possessed. Where assignment of a patent transfers inclusive owner rights to the assignee, the licensing of a patent is a formal agreement often made between an inventor as licensor and a company as licensee. It is a contract that conveys a bundle of selected rights to produce, market, sell, and/or use the product or service in exchange for either royalties from product sales or a fixed payment. In terms of real property, think of licensing as renting or leasing property. Such conveyed rights are less than the entire ownership interest. A license is not an assignment of the patent. Such rights may be limited to time, geographical area, or field of use.
Inventors have four types of licenses and two approaches to licensing. The four types of licenses for patents could include the following:
1. The license to use is actually as worded; the licensee may only use the patent (or other IP). For example, "click through" licensing agreements for software on your computer or mobile device.
2. The manufacturing-only license is often the licensed party to whom the inventor goes to for manufacturing their invention as a product.
3. The sales-only license is often the licensed party with whom the inventor makes an agreement as the authorized sales agent of his or her invention as a product. This could be a wholesale distributor(s) and/or retailer(s).
4. The license to manufacture, sell, and/or use, or a combination of two of these, or even of all three.
The two approaches to licensing are exclusive and nonexclusive licenses. An exclusive license is granted by the patent owner to a licensee. It prevents the patent owner or another licensee from competing with that exclusive licensee for the contracted geographic region, length of time, and/or field of use, set forth in the license agreement. A nonexclusive license could allow multiple licensees for the same geographic region, length of time, and/or field of use.
Submitting a provisional patent application allows an inventor to claim patent pending for his or her invention. When potential licensees are considering an invention, patent pending suggests perception of ownership, which could increase one’s royalties from a licensing transaction. Patent pending entices prospective licensees or assignees of your prospective nonprovisional patent.
Licensing can also be established through standards. Standards are published specifications and procedures intended to assure reliability of products, materials, and services. According to the Licensing Executives Society (LES), fair and reasonable licensing arrangements are often developed with standards, as there are often disagreements between negotiation parties. For more about maintenance and protection of patent rights, see Intellectual Property and Information Rights for Librarians, (ABC-CLIO: Libraries Unlimited, 2019), pages 76-87.
TRADEMARKS AND COPYRIGHTS
Libraries, authors, photographers, and musicians frequently deal with licensing of copyrighted works, while inventors, entrepreneurs, and small businesses often deal with licensing of patents and trademarks. Ultimately, when dealing with licensing, read the fine print in the contract. Confer with an attorney who specializes in intellectual property and contracts.
a reference manual entitled A Manual of Style for Contract Drafting (American Bar Association) by Kenneth A. Adams offers guidelines for clear and concise contract language in drafting, reviewing, interpreting and/or negotiating business contracts.
IMPORTANT NOTICE: Information on this page and other content from the YIP website, programs, or services are provided for informational purposes only. Any information provided should not be considered legal advice. YIP seeks only to facilitate related information and community connections to further IP awareness. Any information received from YIP should not substitute for securing legal advice from a licensed attorney.