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1 November 2005

Licencing and Intellectual Property

The licensing of Intellectual Property is an area which has experienced significant growth in recent years, but which has not yet experienced the same level of growth in Ireland. This is however expected to change as Irish businesses begin to appreciate the potential commercial benefits of exploiting Intellectual Property through licensing, an issue also being highlighted by various initiatives being pursued by, for example, Enterprise Ireland.

The licensing of Intellectual Property, now often referred to as technology transfer , primarily involves the licensing of patented technologies, although licences can involve Trademarks and Designs, as well as know-how and other intangible assets. As patents prevent third parties from commercially exploiting protected technology, a licence essentially allows the Licensee to do what would otherwise be considered an infringement of a patent.

Prior to the emergence of licensing as an effective business tool, patents were primarily utilised, by the patent owner, to maintain a monopoly on the protected technology. However, businesses have come to realise that there are many benefits to licensing such patented technology, both from the point of view of the Licensor and the Licensee. As a Licensee, a licence allows protected technology to be commercialised without the need for often expensive and time consuming research and development. As a Licensor, substantial revenue can be earned as a result of R&D which has been conducted, without requiring the physical assets necessary to effect commercial exploitation of the technology.

Technology transfer is thus most efficient when a Licensor has the knowledge, but not the capacity, to exploit their Intellectual Property, or where a Licensee has the capacity, but not the right, to exploit the protected technology. These factors can be particularly significant in today s global markets, where a business may have patents in a number of countries, but not the physical presence to exploit the technology. Conversely a business may have the physical capacity to exploit certain technology, but not the right to do so, as a result of patent rights held by a business with little or no physical presence in the country in question. If these factors apply to your business, then a licence may be a mechanism to tap into otherwise unobtainable revenue, and should be given careful consideration.

Although in essence a licence is simply an agreement between parties to allow what would otherwise be an infringement, in practice, and primarily for legal certainty, a licence may have a large number of provisions, which can seem overwhelming to the uninitiated. It is therefore helpful, if interested in entering into a licence agreement, to be generally aware of the types of provisions which are likely to appear. The main points which will normally appear in a licence agreement are as follows:

" Scope What is actually being licensed, for example one or more patents. " Territory What countries the licence agreement is to cover, which will often be determined by the countries in which patent protection exists, but which may be determined by a number of other factors. " Term The length that the licence is to run, for example for an initial five-year period, with the possibility of renewing for a further period, if both parties are in agreement. " Royalty rate The royalty rate to be paid to the Licensor, normally for each product manufactured/sold, and for example whether a sliding scale is to be applied based on predetermined manufacturing/sales targets. " Exclusivity an exclusive licence is one in which the Licensor agrees not to exploit the protected technology, whereas a sole licence is one in which the Licensee and Licensor can both exploit the technology. " Improvements it is often the case that during the commercial exploitation of the protected technology, improvements to the technology are devised, and the ownership of any such improvements will often be set out in the licence agreement, normally in favour of the Licensor. The licence will normally include provisions to ensure that the agreement automatically extends to cover the commercial exploitation of the improved technology. " Obligations A licence can have performance clauses, requiring a certain amount of royalties to be paid per annum. " Get out clauses setting out the conditions which would allow either party to terminate the agreement if desired.

Before committing resources to drafting a licence agreement, it is advisable that the basic points be agreed upon, commonly referred to as a Heads of Agreement . These initial discussions will often be of a more informal nature, and can be helpful in fostering trust between the parties, resulting in a more beneficial business arrangement. Once the Heads of Agreement have been negotiated, a suitable licence can then be drafted.

Licensing or technology transfer can be a lucrative business venture for both parties involved, and Irish businesses should begin to examine the potential of licensing technology. To help in this sometimes complex issue, Enterprise Ireland have recently launched a technology transfer service, known as TechSearch which can both help companies to locate and acquire technologies, in addition to assisting a company in working through the necessary procedures involved.

FRKelly

First appeared in Techsearch Newsletter November, 2005

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