ESSENTIAL ELEMENTS IN AN  INTELLECTUAL PROPERTY RIGHTS LICENCE 

In these uncertain times, a business may be considering whether to invest in creating its own intellectual property by creating inventions and filing for patents, by building its brand and registering trademarks or by creating copyright or it may decide that a safer option would be to invest in and exploit the already created intellectual property rights (IPR) of a third party.  

In this case it is wise to explore the validity of the IPR concerned (in the event of the licensor’s insolvency), ensure that the licence has the appropriate scope and extent and includes the necessary terms that would provide sufficient protection having regard to the particular circumstances. 

The licence may be:

• sole (when both the licensee and licensor can exploit the IPR);
• exclusive (when only the licensee can exploit the IPR within the scope of the licence) and
•  non-exclusive (when the licensor can appoint other licensees in addition to the original licensee and exploit the IPR itself as well). 

An exclusive licence provides the greatest protection and commercial advantage for a licensee, since it ensures that the licensee will be the only entity entitled to use the relevant IPR in the relevant field of use/scope of the licence to the exclusion of all others, including the licensor.  

The scope of the licence and rights granted can be very broad; for example, the licence may be irrevocable, perpetual, royalty-free, worldwide and exclusive. However, no matter how extensive the licensee’s rights are under a licence, a licence will only ever amount to a contractual right, with the right to contractual remedies, if things go wrong. A licence can never transfer any proprietary interest in the IPR that is being licensed. If transfer is required then the parties need to enter into an assignment of the relevant IPR.

An exclusive licence will include terms to safeguard the rights of the licensee. For example, it will include obligations on the licensor to ensure the validity and protection of the IPR but it may also give to the licensee the right to renew any registrable IPR, with the renewal fees to be reimbursed by the licensor. In this way, the licensee can ensure that the relevant IPR (and therefore the licensee’s exclusivity) is maintained.

Of course, the licensor may seek to impose this as an obligation rather than a right, with the licensee being responsible for the renewal fees. An exclusive licence also allows the licensee to conduct infringement proceedings unless the owner objects on grounds agreed between the parties. 

An exclusive licensee may also wish the licence to include protections in the event that the IPR are sold to a third party by a liquidator or administrator in case of insolvency. The licensee will be concerned to ensure that such an assignment is subject to its licence and, if possible, subject to an assignment or novation of the licence. In relation to registered IPR, the registration of the licence at the relevant registry will serve as notice to third parties of the existence of the licensee’s rights. 

In addition, the licensee may wish to impose limitations on the identity of any future assignee. For example, the licence could provide that the IPR in question should not be transferred to a competitor of the licensee and/or that any assignment of the IPR should be subject to the licensee’s prior written consent. In this case, however, there is the question of whether such an obligation could be considered to be onerous and therefore could be disclaimed by the liquidator.