An owner (licensor) of Intellectual Property Rights (IP) can grant permission to another person (licensee) to use the IP rights in return for payment (royalty payment). This is licensing of IP.
Licensing is the most common mechanism by which technology transfer takes place.
IP may be “licensed-out” or “licensed-in”. For example, IP can be “license-out” by licensor to another company or organisation (licensee) in return for a reward, financial or other “in-kind” benefits or a combination of both.
An example of “license-in” of IP is that you can use another company’s IP to develop your own products and business under the licensing arrangement.
The terms and conditions of IP licensing should be recorded in writing (the License Agreement). The terms and conditions are varied and depend on the relationship and respective bargaining powers of the licensor and the licensee.
Typical negotiation points of IP License Agreement:
1) Duration of licence
2) What are the consequences of the breach of the license agreement?
3) Can the licence be sub-licensed or assigned?
4) If the licensor has multiple licences, do the exclusivity provisions conflict?
5) What are the consequences if the licensor’s ownership is sold?
6) Termination of the agreement /Any automatic renewal of licensing?
There are different types of IP licensing, which can be:
1) Sole right: the licensee is the only person that will be granted a licence to exploit or use the IP, but the owner retains the right to exploit the IP as well.
2) Non-exclusive: the licensor can grant as many licences as the licensor decides, and also retains the right to exploit the IP as well.
IP is being licensed in return for royalties. The amount is often of a certain percentage of the invoice price for which a licensor sells the product encompassed in the IP and the royalties are paid on a periodic basis.
Other types of financial payments can also be made, including :
1) upfront payments,
2) milestone payments, which are additional lump sum payments that are paid upon the achievement of significant or major events in the commercial exploitation of the IP.
For legal advice or services on IP licensing matters, please contact CHOW & CHEUNG [Tel: +852 2856 3799 or Email: cac@ccsn.hk]
www.ccsn.hk
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