Are you a LatAm based entrepreneur and would like to license your intellectual property or use someone else’s intellectual property?

Intellectual Property (IP) rights such as copyrights, patents, trademarks and trade secrets are protected by law in every country as well as by applicable international conventions. Approval to use someone’s IP, including copying, reproducing, distributing or altering such IP must be granted by the owner of the IP. For an overview of the different types of IP, you can read Brown Rudnick’s article on the topic by clicking here. 

A licensing agreement is a contract between the owner of the IP (licensor), and the person being allowed to copy, reproduce, distribute or alter the IP (licensee.) Since IP consists of a bundle of rights, different aspects of such bundle of rights can be divided and licensed separately in a licensing agreement. Licensing agreements offer a high degree of customization in connection with its duration, geographic location, extent of use and exclusivity.

When entering into a licensing agreement, there are three primary considerations you should take into account: (1) scope of the IP rights being licensed; (2) method and schedule of payment; and (3) allocation of risk between the parties.

Scope of IP Rights

The following considerations will help you define the scope of a licensing agreement:

Description of licensed IP: The IP being licensed should be clear and unambiguous.

Purpose/Field of Use: The licensor may license the IP for all purposes or only certain ones; for example, the owner of a copyright may license the right to distribute the work in one language while retaining the right to reproduce the same work in other languages.

Duration/Term: The license may be granted in perpetuity, for the life of the licensed IP or for a specified duration. If the IP is licensed for a specified duration, the parties should consider whether that duration will be renewed automatically or by mutual agreement of the parties. 

Geographic Scope: A licensing agreement may grant a license worldwide or limit the scope to certain geographic areas. For example, a licensor may license their trademark to one licensee for one geographic location and to a different licensee in a different geographic location. To learn more about how to protect your trademark rights globally, you can read Brown Rudnick’s article on that subject by clicking here.

Exclusivity: A license may grant exclusive rights to the licensee, or the licensor may retain certain rights to exploit the IP itself. Exclusivity typically applies to particular fields or geographic areas, with other uses or geographic areas being licensed on a non-exclusive basis or not licensed at all. 

Improvements: If the Licensing agreement allows the licensee to make improvements and/or create derivative works of the IP, the agreement should address what rights the licensee has in such derivatives and improvements such as the scope of ownership, any payments owed, and applicable restrictions. 

Payment Terms

Licensing payments are generally customizable. The most common payment terms may include an upfront payment, ongoing royalties or a combination of the two. Royalties, for example, can be structured as a fee per unit sold or a percentage of revenue, with the fee being a set amount or changing over time. Where exclusivity is granted, upfront fees or required annual minimum royalties are customary, as the licensor is taking on the risk that the licensee will be successful by limiting its ability to license to other parties or develop the invention itself.

With regards to international licenses, royalties may vary based on the relevant jurisdictions. For example, if a licensed product commands a higher price in one jurisdiction as compared to another, the royalty owed for sales in each jurisdiction may differ. Also, some jurisdictions have restrictions on certain payment structures such as those involving royalties due after a patent’s expiration. If you would like to learn how to file patent applications in multiple countries in a coordinated manner, you can read Brown Rudnick’s article on the topic by clicking here. 

Allocation of Risk

When it comes to IP, the general goal of the licensor is to maintain any rights it did not purposefully grant and avoid exposure as result of choices made by the licensee with respect to the rights that were granted. The licensee’s goal is to utilize and earn revenues from the licensed rights and potentially earn revenues while avoiding exposure associated with rights it was not granted. Conducting a thorough risk assessment prior to entering into a licensing agreement is critical to ensure the success of the underlying commercial transaction. 

If you need help designing a licensing agreement, or optimizing an existing one, whether you are the licensor or the licensee, to ensure that the agreement contemplates sufficient rights to implement the business plan at stake, please let us know. Our international team of lawyers can help you develop a global strategy to protect and optimize the value of your IP rights.