Owners of intellectual property rights are free to allow others to exercise their rights. A permission to exercise a right is known as “a licence”.A licence is usually in the form of an agreement in terms of which a holder of a right allows a third party to use that right, in return for some form of remuneration. The remuneration may take the form of a royalty but may also be in the form of a lump sum payment.

Patents, designs, trade marks, copyright, trade secrets and “know-how” are all examples of intellectual property, which can be licensed to a third party. Know-how is difficult to define, but it is in essence a fund of expertise, which a party has built up in respect of a field of technology in which it is working. It is embodied in practice in drawings, notes, calculations, reports and various other types of written and drawn documentation.

Types of licences
Depending on the nature of the relationship being created between the parties the licensing agreement can take many different types of forms. These include an exclusive licence in terms of which only the licensee is entitled to use the rights licensed, a sole licence which is similar to an exclusive licence except that the licensor also has the right to use the rights licensed, and a non-exclusive licence in terms of which the licensor retains the right to licence other third parties to use simultaneously the rights licensed.

The licence contract
Some of the issues, which should be discussed when negotiating a licence agreement, are:

  • The territory which the licence is to cover
  • The duration of the licence
  • The nature of the license being granted (i.e. an exclusive, non exclusive or sole licence)
  • Whether a royalty or lump sum payment or both are to be paid and if so, the method of calculating the royalty.
  • Whether the licensee is entitled to appoint sub-licensees
  • What minimum performance (if any) is to be required of the licensee,
  • The maintenance of the confidentiality of important information
  • Who is to own the rights in improvements made to the technology if applicable?
  • The party responsible for patent prosecution and maintenance costs
  • Currency in respect of international licensees
  • Adherence to IPR Act 2008

Special forms of agreement

Various special forms of agreements may also be entered into with regard to the commercial exploitation of intellectual property. Examples of these agreements are franchise agreements, joint venture agreements, distributorship agreements, agency agreements and confidentiality agreements and undertakings.

For more information, tools and links, visit the Licensing Toolkit page.

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