WHAT IS LICENSING?

The global marketplace creates a myriad of opportunities for innovative firms to expand their operations. Licensing of intellectual property (IP) rights, such as patented technologies, copyrighted software, or trademarked brands, can be one of many attractive options for exporters seeking to leverage their business skills in international markets as a globalisation strategy.

Phillip Noonan, Director General of IP Australia, the Federal Government agency which administers intellectual property rights says, "Licensing has intuitive appeal to many exporters. As an entry strategy, it can eliminate the need for capital investment or knowledge and marketing strength in overseas markets".

The word “license” simply means that permission is granted by the owner of an IP right to another, called the licensee, to use the right on agreed terms and conditions, for a defined purpose, in a defined territory for an agreed period of time.

IP licensing gives the licensee the right to use, but not own, the copyright, patent, trade mark, design, technology, technical know-how or specific marketing skills which are licensed. The value of these rights arises from a commercial negotiation and is based largely on the strength of the IP rights in the creation or invention – the licensee isn’t paying for a product, it is paying for access to legal exclusivity.

“Each licensing situation is unique. Due diligence is a necessary first step before embarking on any kind of business transaction. This will allow the parties to assess the value of the IP and agreement can be reached on the relevant cost of the license,” says Mr Noonan.

Rob McInnes, Immediate Past President of the Australian Chapter of the Licensing Executives Society, a professional association devoted to IP licensing, says “licensees will want to know three things. First, they will want to know whether the licensor owns the IP that is offered for license. There’s no point in taking a license from someone who doesn’t own the IP. Secondly, they will want to know whether the IP is legally enforceable – for example, the fact that a patent has been granted doesn’t necessarily mean that it will stand up in court, so sophisticated licensees will carry out their own analysis. Thirdly, they will want to assess whether using the licensed IP right will infringe the IP rights of anyone else. This is called “freedom to operate”.

Licensing is often considered in three broad categories, namely technology licenses, publishing and entertainment licenses, and trademark and merchandising licenses. The appropriate form for a license agreement will depend very much on the goods or services being licensed.