How do IP licensing and assignment agreements work?

IP often forms a core part of a business’s value and can be bought and sold like any other form of property.

Many companies also monetise their IP by granting others the right to use it. These transactions are achieved through IP assignment and licence agreements and it’s crucial you understand the difference.

What is a licence?

An IP owner can stop someone else from using their IP, but on the flip side they can also permit someone to use it. A licensor grants rights to use their IP to a licensee, who is permitted to use that IP, subject to certain restrictions. It’s an attractive option because a licensor can generate revenue without having to invest in exploitation. In turn, the licensee can save resource, time and money from developing its own IP.

A licence can be oral but to ensure certainty for both the licensor and licensee it should always be recorded in writing. Certain licences to registered IP rights (e.g., patents and trade marks) should also be recorded on the relevant IP register. Some key terms which the licence should address are:

  • Scope of grant – you should agree the territory covered by the licence (e.g., the UK) and the permitted field of use (e.g., manufacturing computers).
  • Exclusivity – within each scope of grant there are three types of IP licence which can be granted: (i) an exclusive licence, where only the licensee can use the IP, even the owner is excluded; (ii) a sole license, where only the licensee and the owner can use the IP; and (iii) a non-exclusive licence, where the owner can continue to use the IP and can also grant non-exclusive licences to other people.
  • Term – a licence can be for a specified time or perpetual.
  • Termination – you need the ability to end the licence in certain scenarios. For example, if one party goes insolvent.
  • Royalty payments – the licence should specify how much the licensee is required to pay for the licence and whether this is a lump sum or a running royalty, calculated with reference to certain sales made by the licensee.

What is an assignment?

An assignment involves the transfer of ownership of IP to someone else. An assignor is the person transferring the IP and the assignee is the person ‘receiving’. The assignor will lose the right to use the IP after the assignment, unless of course the assignee agrees to grant them a licence to continue using it. Assignments must be in writing and signed by the assignor. Assignments of registered IP rights must also be recorded on the relevant IP register.