Thursday, September 2, 2010

Intellectual Property Licensing

When clients talk to our trademark attorneys or business lawyers about the scope of a license – whether for trademarks, copyrights, or other intellectual property matters, the first question they usually ask is, “what does the license cover, and how much can I push the envelope?” I am often reminded of a misbehaving 5-year-old child who, being punished for doing something inappropriate in a social setting, asks his or her parent, “How do I know I cannot do something unless you tell me?” While the statement is precocious coming from a 5-year-old, that attitude is not as endearing in the context of intellectual property law.

Licenses for copyrights, trademarks, and other intellectual property are creatures of contract. As a contract, a license must specify what the licensor allows a licensee to do with the licensed intellectual property. If the licensee takes any action or utilizes intellectual property for purposes not allowed by the license, that person is an infringer, not subject to the protection of the law. In structuring a license for a copyright, trademark, or, for that matter, any other intellectual property, the following considerations must be considered.

First, what is the intellectual property sought to be licensed? The scope of the licensed rights must be defined with specificity, so that the grant of rights is apparent to an objective third party. Business lawyers should be able to construct a license with the appropriate granting language, as well as the following considerations.

Second, after the intellectual property to be licensed has been identified, the licensor must delineate the permitted use and exploitation of the licensed intellectual property. This becomes part of the granting clause of the license, which should unambiguously identify the terms of usage and exploitation.

Third, the license contract must specify the term and territory of the license. Most times, in traditional businesses, a license will be granted for a particular time within particular geographical parameters. This limits the area in which a license may be exploited, and allows the licensor to control or limit the actual dilution or threat of dilution in the licensed intellectual property. The issue of territory becomes more complicated when dealing with businesses that sell primarily online. In fact, it is arguable that there can be no territorial definition, for license purposes, online. There is also a practical prohibition to online licensing as it is difficult to track all sales made by a licensee utilizing the trademark, copyright, or other intellectual property, whether for simple audit purposes or to control the dissemination of the intellectual property. The term of the license is important because it controls how long a licensee may utilize the licensed intellectual property. If the term of the license is too long, it may be effectively a quasi-assignment of the intellectual property rights, which the licensor would not want because it may dilute the value of the licensor’s trademark, copyright, or other intellectual property interest.

Fifth, and finally, a license agreement must provide for the terms under which the license may be involuntarily terminated, upon determination by the licensor of any impermissible acts or exploitation of the intellectual property – essentially examined under contract law, or provide for a sunset provision by which the license expires by its own terms.

In entering into license negotiations, the licensor and the licensee must fully and frankly explore their common business relationship during the term of the license, with the licensor imposing some degree of control on license grant, and the licensee negotiating a realistic right to fully and fairly exploit the rights granted in the license.

Charles M. R. Vethan
Managing Partner