Intellectual Property License Agreement

What is an Intellectual Property Licensing Agreement?

An Intellectual Property Licensing Agreement is a document under which the intellectual property ("IP") rights owner ("Licensor") authorizes another person to use such rights ("Licensee"), in exchange for a payment, known as a "Royalty". This Agreement can be used for any type of Intellectual Property License including patents, copyrights, trademarks, and designs.

Under the License Agreement, the ownership remains with the Licensor of IP rights while granting permission to the Licensee to utilize the IP in a particular manner for a limited period.

What are the different types of Intellectual Property License Agreements?

• Exclusive License: Under this type of License only the Licensee will be entitled to use the IP rights. The Licensor will be barred from using it and giving the license to any third parties during the license period.
• Sole License: Under this, both the Licensor and Licensee will be entitled to use the IP. Such rights cannot be transferred to any third parties, and the Licensor will be barred from issuing any new license during the term of the Agreement with the Licensee.
• Non-Exclusive License: This is the commonly used method of licensing. Under this, Licensee will be allowed to use its rights and Licensor will be free to issue new licences to any third parties.

What is the difference between an Intellectual Property Licensing Agreement and an Assignment Agreement?

Under an Assignment Agreement, the Licensor gives away all the rights over the IP rights including ownership for consideration and will not be entitled to use such IP rights or receive regular Royalty payments on them. On the other side, under an Intellectual Property Licensing Agreement only usage rights are granted to the licensee while the licensor retains the ownership.

Is it mandatory to have an Intellectual Property Licensing Agreement?

Yes, the Intellectual Property Licensing Agreement is mandatory as many of them are required to be registered to be a valid document. Moreover, having a written Intellectual Property Licensing Agreement will help in understanding the rights and obligations of each party and avoid potential disputes in the future.

What does "License" mean?

A license is permission granted by the owner of the intellectual property (the Licensor) to another party (the Licensee) to use that intellectual property in a specific way. The Intellectual Property License Agreement clearly define what the Licensee is allowed to do with the IP including making copies, selling products based on IP, or modifying it for a specific use.

What does "Royalty" mean?

A Royalty is a payment made by the licensee to the licensor for the right to use the IP. It can be a percentage of revenue generated, a fixed fee or a combination of both.

Who can enter into an Intellectual Property Licensing Agreement?

Any person above the age of 18 years or registered entities who own the IP can enter into an Intellectual Property Licensing Agreement.

What can be the duration of an Intellectual Property Licensing Agreement?

The duration can vary from a few months to several years. The parties considering the nature of the transaction and commercial viability the parties can decide the duration of an Intellectual Property Licensing Agreement.

What must be done once an Intellectual Property Licensing Agreement is ready?

The Intellectual Property Licensing Agreement will be legally binding when it has been printed on non-judicial stamp paper or e-stamp paper, and signed by each party. The value of the stamp paper would depend on the state in which it is executed. Each state in India has provisions in respect of the amount of stamp duty payable on such agreements. Information regarding the stamp duty payable can be found on the State government websites.

Each Party should sign and return a copy of the Intellectual Property Licensing Agreement. Where a company is a party to this agreement, it should ensure that the Intellectual Property Licensing Agreement is signed by an authorized signatory, which is usually a director as authorized by a board resolution of the company.

Each Party should keep a signed copy of the Intellectual Property Licensing Agreement. To do this, two different copies can be signed, or if only one copy is signed, it can be photocopied and then distributed between the parties.

Is it necessary to register an Intellectual Property Licensing Agreement?

Yes, depending on the nature of the IP, the registration is mandatory for an Intellectual Property Licensing Agreement to be valid. For example, patent and design assignments must be registered with the concerned controller or authority to be a valid agreement.

Is it necessary to register an Intellectual Property License Agreement concerning a trademark?

Registration of trademark Intellectual Property License Agreement is not mandatory under the law. However, registering it will create a public record and help in avoiding any future disputes.

What must an Intellectual Property Licensing Agreement contain?

The Intellectual Property Licensing Agreement must contain the following clauses:

• Parties: The type and details of the parties i.e., Licensor and Licensee are included under this Agreement.
• Description of licensed property: the details about the licensed property can be mentioned under this Agreement.
• Grant of rights: defines the scope of rights and limitations of a licensed property. This included a geographical area to which the use of IP is restricted and the purpose of issuing the License to the Licensee.
• Sub-Licensing rights: it will clarify whether the Licensee is allowed to sublicense the Licensed Property to any third parties.
• Modifications: it include, whether the Licensee is allowed to make any modifications to the IP.
• Consideration: It includes the method of calculation of Royalty payable by the Licensee, how it will be paid to the Licensor and who will bear the cost of GST (Goods and Services Tax) payable on such transaction.
• Penalty: includes the penalty for any late payment of Royalty by the Licensee.
• Warranties: The warranties or promises by both the Licensor and Licensee with regard to their capacity to enter into this Agreement, and ownership over the IP rights.

Which laws are applicable to an Intellectual Property Licensing Agreement?

Licensing of copyright: under the Copyright Act, 1957, the owner of the copyright can license the rights in copyright in writing. For granting licenses in respect of literary, dramatic, musical and artistic works in cinematography films and sound recordings can only be carried out through a registered copyright society.

Licensing of trademark: under the Trademarks Act, 1999, the licensing needs to be in writing. Only those license agreements registered with the Registrar will have protection under this Act.

Licensing of patents: under the Patents Act, 1970, the licensing agreement has to be in writing and registered with the Controller of Patents.

Licensing of design: under the Designs Act, 2000, the licensing agreement shall be writing and registered with the controller within 6 months from its execution.

A License Agreement is a contract and general principles of the Indian Contract Act, 1872 will be applicable.

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