Licensing Your IP: When Should You Consider It?
An IP license is essentially giving another person the right to use your intellectual property. When is the right time for you to take that step?
An IP license is essentially giving another person the right to use your intellectual property, which can be anything from your trademark, your copyright, your patent, your know-how, formulas and other processes and things you have created. Many people refer to IP as creations of the mind. Through a license, you are allowing others to use your creations for a specific reason and for a set period of time. Essentially it is a partnership between the intellectual property owner and another who wants to use the intellectual property.
Our law firm typically sees businesses seeking to license their IP through franchising, which is an effective way to use the assets of others to expand the market share and reach of your IP.
Why should businesses consider licensing their IP?
When you have created something of value, and want to expand your business, maximize potential revenue, or improve or increase your market position, licensing is a great option. There are several types of IP licenses from technology licenses to franchising, which can be simple to complex, depending on the type of IP being licensed and the purpose for the license. Our law firm typically sees businesses seeking to license their IP through franchising, which is an effective way to use the assets of others to expand the market share and reach of your IP.
What are the benefits associated?
The main benefit as I stated above is to leverage the assets of others to expand your business or take your product into markets you would not otherwise be able to reach on your own.
Set clear boundaries in the agreement and make sure the IP is actually protected.
On the other hand, what should businesses be cautious of? How can they protect themselves from things going wrong?
In theory, an IP license is a simple document: I give you the rights to use my intellectual property and you agree to pay me for that right. Simple enough. However, these types of agreements really need to take into consideration a multitude of factors, and if ignored, can really harm the intellectual property and could create a situation where the owner loses their rights and business completely.
Many companies have either gone under or had their IP so diluted that it becomes so devalued because they expanded too quickly and could not meet the demands of either the licensee(s) or the public.
To protect your IP, you should really remember four key elements:
1) Make sure you actually own the rights and if the IP is a technology or know-how, that it actually works and performs as intended. This seems obvious, but this seemingly simple step is at the heart of the IP license. There are a lot of things that go into creating IP and depending on the type of IP and the agreements in place surrounding the creation, you may have to share ownership or limit the rights to just those that are needed to meet your objectives.
2) Set clear boundaries in the agreement and make sure the IP is actually protected. If you are licensing your trademark for a drink you created, and not the formula for the drink, you want to make sure the agreement has protections against reverse engineering, changing the end product or putting another trademark on the beverage.
3) Be wary of granting exclusivity. A potential licensee may come to you with a lot of money and seem to be the best option for expansion, and in return, they may want to be the exclusive licensee. However, you want to make sure that limiting your options to provide other licenses or use your own IP in the ways you see fit, are in your best interest.
4) Lastly, and this ties with setting boundaries and exclusivity, make sure you have the capacity to expand at the rate the license provides. Many companies have either gone under or had their IP so diluted that it becomes so devalued because they expanded too quickly and could not meet the demands of either the licensee(s) or the public. Establishing test territories and creating a business plan for how and when you will expand is a great way to ensure that your IP license doesn’t turn into a negative experience.
How do you devise the rights and relationship between the licensee and licensor?
An attorney knowledgeable in all types of IP license agreements can create an agreement that specifically meets your needs and gives you the protection you require. That same attorney will also help you understand what you need to know about your own intellectual property and help ensure that your creations and rights are protected.
Kara K. Martin
I’m Kara Martin, a Partner and Shareholder of the Franchise & Business Law Group. We are a boutique law firm headquartered in Salt Lake City, Utah and I work out of our satellite office in the Kansas City, Kansas Metro area.