European IP Helpdesk

Bulletin No. 1 Licensing

9

An interview with Eugene Sweeney, Senior Policy Advisor of the European IP Helpdesk, on what to consider once the deal is done, and the importance of proper post-deal management to make it a happy connection.

Licensing is one of the most common ways of transferring IP; whether from a university to a company, or from one company to another. But when the deal has been done and the licence signed, isn’t that the end of it? Shouldn’t you just let your licensee get on with it, so you can carry on with your research or other business interests and just wait for the licence revenues to flow in?

A licence is not a one-way transaction it represents a long-term relationship between the parties, with obligations on both throughout the life of the licence which can be for a very long time! So, the work of the licensor (or owner of the IP) doesn’t end when the deal is signed. If you own and rent out a physical asset, such as a house, car or piece of land, you are expected to actively maintain that asset, so that the person who rents the asset gets the value they expected when they originally signed the rental agreement. Intangible assets are no different, and active post-licence management is essential to maintain and maximise value.

When you license IP, the licensor grants the licensee the right to use that IP under certain agreed conditions

in return for something, usually financial. By granting someone a licence to use your IP, you also undertake to protect them from infringers of the legal rights attached to that IP (the Intellectual Property Rights, IPRs), such as patents, copyright, design rights, database rights, etc.). It’s like renting out a field. If you grant someone the right to use the field, you have an obligation to keep the field in good condition, and to stop other people entering the field and using it for their own purposes.

If your IP is successfully exploited, then you should expect that someone will try to copy you, and maybe operate on your patch. Hence, they will compete with your licensees, hence reducing your returns. You may need to consider using your legal rights (IPRs) to take action on an “intruder” to prevent them using your IP for commercial purposes. They may, of course, find a way to work around your IPRs, and this is why it is important to secure strong and broad rights, rather than have IPRs which are easy to work around or easy to challenge.

But if you are an SME or even a university or research institution, you may not have the resources or the will to take legal action?

That is true, but most infringements are not deliberate, and can usually be resolved by notifying the other party of the existence of your IPRs and asking them to take a licence or come to some other arrangement. They will, of course, look at the strength of the IPR before

deciding to take a licence, and if it is strong then they will probably want to negotiate with you, but if not then they may decide to challenge the validity of the right.

It is very important then, when establishing the legal right (e.g. a patent, design right, etc), that it is both broad enough to avoid “workarounds” and strong enough to deter challenges to its validity. For this reason, working with a good IP lawyer or patent attorney is critical to ensure the patent meets your commercial requirements. If not, you may end up spending a lot of money to get a granted patent, which, if not fit for purpose, won’t serve for much more than to frame it and hang it on the wall.

However, in case the infringer refuses to desist or take a licence, you need to decide if and how to enforce your rights. In some cases, the cost of enforcement will be high (usually only in case the IPR is weak) and exceed any revenue you might generate making it commercially unviable to go down this route. So, the licensor may not want to be burdened with the “obligation” to enforce IP rights against infringers in all cases. Therefore, it is important that the decision to take action remains with the licensor. One way of doing this would be to agree on a process in the licence agreement, such as the following, which is only a suggestion and other arrangements could be reached as well.

If either licensor or licensee becomes aware of an infringement, they will notify the other party immediately. They would probably also contact the infringer and notify them of the existence of the IP right and ask them if they wish to take a licence or desist (depending on the licence).

If there is no easy resolution with the infringer within a given time (e.g. 30 days), the licensor will decide if they intend to commence proceedings against the infringer. If so, they will bear the costs and be entitled to any award of costs and damages.

If the licensor decides not to take action, they will inform the licensee and they will discuss what joint action should be taken, if any, and how costs and awards will be split.

If the licensor decides not to act jointly with the licensee, then the licensee may proceed to act against the infringer independently. In this case, the licensee will bear the costs and be entitled to all awards.

If the licensee decides not to proceed against the infringer, the licensee will be entitled to a royalty-free, non-exclusive licence for the remainder of the term for the relevant territories and fields of use.

“A licence is not a one-way transaction

it’s a long-term relationship that can last for years!”