License to Chill

You've got the next best thing and have it registered/patented. Now, how do you monetize it?

The best way is to license your intellectual property. Licenses are just contracts. They specific language in them that should have the other party pay you for the right to use your protected property. What exactly should be in an intellectual property license agreement? Below are just some of the considerations that need to be taken into account to make sure you are fully protected.

Recitals

Recitals lay out the basics of the agreement. Who is involved? Why are you entering into the agreement? Who owns what? Recitals summarily answer these questions. They are the executive summary of the agreement.

Grant of Rights and Payment

This is the reason for the document in the first place. Will your license be exclusive or non-exclusive; will the person licensing your property be the only person or will others be licensing it as well? Exclusive licenses generally have a higher dollar value associated with them than non-exclusive licenses.

Another question you have to ask is how will you be paid? Lump sum? Monthly payments tied to their sales? Flat quarterly payments? These considerations can make or break a negotiation depending on who you are working with.

You also need to ask whether the license will be limited to a particular field of use. This comes into play when a patented product or service has multiple applications. Care should be taken with this consideration, however, because field of use limitations will make a patent license non-exclusive in the eyes of the law. Why this matters is explained below.

Warranties

You will see these in most contracts. What are they for? Warranties are contracts to keep both parties honest. In an IP license agreement, warranties provide two-fold protection: the IP holder provides an assurance that they actually own what they are selling as well as that use won't infringe on someone else's rights and the IP licensee provides an assurance that they have the authority to enter into the agreement in the first place. These warranties can be worded to be favorable to the IP rights holder or the IP rights receiver.

What happens if either party warrants something that ends up being false? Damages. The primary measurement of damages is the monetary value of what you should have received versus what is likely the zero value actually received because the warranty was breached. For example, if Party A did not actually own the rights it is purportedly licensed (likely due to bad due diligence), then Party B could theoretically recover all of the money it paid Party A as part of the agreement as well as any other expenses related to the sale of goods/services associated with the IP right. The contract could also be rescinded in its entirety or terminated for cause.

Infringement

Who is responsible for enforcing IP rights when it is licensed? It is important to include this clause in a situation where one of the parties identifies a potential infringer of the IP. Generally, the licensee is responsible for notifying the licensor of any potential infringement. The questions after that become: Who is in charge of pre-suit activities and litigation? Who needs to be involved in any litigation? Who is going to pay for pre-suit activities and/or the litigation?

If you have an exclusive license (not limited to a field of use or any other similar condition), then the licensee could potentially handle the litigation on their own. This is because they have "prudential standing" meaning they have all of the substantial rights associated with a patent and the risk of the infringer getting hit with several lawsuits at the same time about the same subject matter is lessened.

The opposite is true in a situation where there is a field-of-use limitation or the license is non-exclusive in some other manner which makes the potential infringer exposed to multiple lawsuits and the associated costs. Courts disfavor excessive litigation costs and thus prudential standing came to be. No prudential standing for a licensee means that the licensor/rights holder must be a party to the lawsuit. No rights holder, no standing, no lawsuit. This is a basic explanation of a highly fact-based concept so your mileage may vary in terms of real-world application.

Other Provisions

Beyond the provisions described above, there are clauses included in every contract that you should be aware of and fully consider before putting your name on the dotted line.

These considerations include: (1) how long the agreement will last (1 year? 5 years? The life of the patent? Will it get renewed?), (2) dispute resolution procedures (where? litigation? arbitration?), (3) confidentiality issues, and (4) other general provisions making sure the agreement will be upheld if challenged.

Signatures

Finally, the part that makes the whole thing work, is signatures. Without signatures from both parties, the agreement has no force. Signatures are the symbol that each party is actually agreeing to the terms within the agreement. At their most basic, contracts require three elements: offer, acceptance, and consideration. Consideration is the give and take within the license agreement (i.e. things of value are exchanged between the parties or the parties agree to actively do something or not do something). Before signatures, the agreement itself is an offer that can be negotiated and changed. After all signatures are affixed to the contract, there is acceptance and a contract is born.

Abide by the terms of the contract and hopefully, both parties will flourish.

Entering into a license agreement is no easy task. Speak with a qualified attorney today to discuss.