So two weeks ago I discussed a marketing agreement (aka reseller agreement). This was where you would allow someone to (re)sell your product or service for a fee. The benefit of such an agreement should be clear to those who can produce a lot, but lack distribution channels. As I said, I will be for several weeks charting some of the type of agreements you will come across as a business.
Licensing Agreements: Tool to Allow Usage, but Not Grant Ownership
Imagine that when you own something that you possess certain rights that come with ownership. Each of those rights is a like a stick, so what you have is a bundle of sticks. As an owner, you can break those sticks apart and pass them out without losing ownership. You have licensed your rights out.
Today I will focus on another type of contract that you might consider making, alicensing agreement. Instead of selling your product or service to another, a licensing agreement allows another person to use your product or service. The key word here is “use”, as with a licensing agreement the person who may be utilizing the product or service has no ownership. In today’s electronic productive world, there is something that you should realize by now. Most of your software (if not all) is not yours. Why? You have been granted a right to use the software through a licensing agreement., which means you cannot reproduce copies of your software and give those copies to friends. It is a violation of a the licensing agreement. This is why the term End-User License Agreement (EULA)pops up as you install a game, office suite, or some other type of software.
What the EULA says, more often than not, as you scroll to the bottom of the long document to click “I Agree” is you are the end-user, thus you get a license, and you understand you don’t own the software, nor will you copy and resale in en masse.
The pie is something the licensor (black) owns. The licensor can make different licenses and control the terms of each license as he gives out different types of right to use the property (the pie) to licensees (the different colored figures).
Now what does that mean for you small businesses with a strong brand or startups that are producing the next awesome software for everyone to use. You can use a licenses to parse rights outs, the best example I can think of the art of licensing is you have a pie and you can choose to cut it up in any way you see fit (barring restrictions from the law).
Licensing Out IP: Factors to Consider
Let’s take a copyright license for a comic book. You own the right to copy (which includes derivative works). So let’s say you give the rights to “copy” to a movie company to produce a theatrical release, you give another license to a publishing company to do a novelization, then another to a Broadway producer to make a musical, finally you grant another license to a troop of interpretative dancers to perform the story on the street and open-air fairs. These are all licensing agreements to use your right to copy a derivative work off of that one original comic.
So the comic book artist owns the copyright. He can then license out derivative works (as is his right) for others to use to make movies, books, musicals, and even street performances.
Even what’s better for you as the licensor (the one granting the license) is you can change the terms of the agreement for each licensee (the one receiving the right to use). Here are some things you want to consider in a licensing agreement:
- Exclusivity – is the licensee the only one who gets the right to use? In one region?
- Payment – does the licensee pay a one-time usage fee or do you make periodic payments?
- Time – is the license forever? Is it finite? Does it end if a certain event happens?
- Control – does the licensor have a right to dictate the quality, delivery, etc . . . of the product or service?
- Indemnification – will the licensor move to defend the licensee if they get sued for using the product or service from a third party?
When licensing the licensor and licensee should consider many things, such as: exclusivity, timing of payments, duration of the license, and the degree of control by the licensor. There are many more terms to consider.
These are only a sliver of things to consider when using licenses. As always while you may have your own basic ideas of what the objectives of your deal is it is best to go to an attorney to reduce your intentions to writing, especially when it comes to licensing intellectual property, land-use, and agreements that are to last beyond a year.
[author] [author_image timthumb=’on’]http://www.alohastartups.com/wp-content/uploads/2011/09/RyanKHew.png[/author_image] [author_info]I am a practicing attorney in Honolulu, HI helping small businesses with their transactional and compliance needs. Contact Me Today: Web| 808.944.8400 @RKHewEsq Ryan K. Hew, Attorney At Law[/author_info] [/author]
*Disclaimer: This post discusses general legal issues, but does not constitute legal advice in any respect. No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction. Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.