From a business perspective developing an on-going licensing process is one way of fulfilling the requirement of optimizing the value of a business’s intellectual property portfolio or a way for an individual or entrepreneur to obtain manufacturing, distribution, and sale of their work in a significant manner that would otherwise be difficult to establish. One of the beauties of the licensing of intellectual property is that there is potentially unlimited opportunities for income by expanding your licensing to additional territories and markets for a given work. This is as opposed to a tangible asset such as a lathe in a machine shop wherein the income from the tangible asset is strictly limited to the physical output of the machine; say running 24 hours a day.
The following list is a starting point of issues to consider prior to entering into a licensing agreement to protect your interests and to allow you to secure alternative licensee’s should the relationship prove unsatisfactory. Basically you and the licensee are open to defining the scope of the licensee’s activities and what you expect in return for royalties with the following given to clarify obligations of the parties. Remember you are “selling” your proposal to the potential licensee and need to create a win-win situation for both yourself and the licensee while at the same time adequately protecting yourself.
Giving Permission or in the alternative Licensing the Rights to your Copyright
1. The first step is to have an awareness of the scope of your copyright permission that you have that are available for licensing including derivative rights, i.e. the movie rights to a book for instance as an example of a derivative right in copyright. Thus, having an intellectual property portfolio that clearly documents all aspects of your copyrights is important.
2. Locate potential licensee’s to consider their capabilities, past reputations, and “fit” with your goals in licensing your work. You and your potential licensee are contemplating entering into a fiduciary relationship, which means that good faith, honesty, and each party’s best efforts are important in making the ongoing relationship a success for each party. Thus, investigating the potential licensee’s past performance in similar agreements and the background of the potential licensee is important. Compare a license agreement with an executory contract, in that with an executory contract there is less risk because a contemporaneous exchange of value occurs and each party has a better understanding of the goods or services received. With a fiduciary relationship there is a required trust of the other party into the future making the value exchanged not as obvious.
3. Discuss with the licensee what your goals and expectations are for the relationship.
4. The grant of the license defines the scope of what and where you are allowing the licensee to use your copyright rights. This would cover issues such as whether the license is exclusive or not, and whether the licensee can assign the license to third parties, etc.
5. The term of the agreement normally cannot exceed the life of the copyright, however, non-copyright rights, such as trade secrets with longer terms could be included also.
6. Royalties can be defined by market levels and can vary greatly depending upon the split of tasks between you as the licensor and the licensee. Other items to consider related to royalties are minimum payments, method of payments, method or calculating payments, and consequences of non-payment.
7. Inspections, audits, and documentation of the licensee’s activities should be considered also.
8. Control of your copyright rights, public disclosures, and associated documents should be defined also, such as maintaining confidentiality and control over what is publicly disclosed.
9. Also, what are the parties’ obligations to each other for technical and other support activities such as marketing, distribution, promotion, manufacturing, proper marking for notice, etc.
10. How are improvements to the technology going to be handled, who is going to own what improvements and who is going to pay for the improvements, these are often called “grantbacks”.
11. Who is going to police, enforce, pay for, and receive any awards of damages related to infringement of the copyright by third parties?
12. Are you indemnified from the various liabilities related to the licensee’s manufacturing, use, and sale of your copyrighted work, such as who is responsible for product liability and related items such as standards compliance, codes, required permits, etc. that would be applicable.
13. Under what conditions can the agreement be terminated by either party.
14. What constitutes official notice between the parties.
15. What obligations exist for the parties after termination of the agreement.
16. How are disputes to be handled, either through arbitration, specific courts, etc.
17. Is there any antitrust risk in you and the licensee executing this agreement; also are there controls that need to be in place for preventing future antitrust issues. This could include tying contracts, resale restraints, having more that 20% of the market, or having less than four technical alternatives for consumers that use your technology.
18. To streamline the permission giving process and to strengthen your copyright notice, a statement about the rights associated with the copyright notice to reinforce the non-copyright owners obligations to the work can be added as follows:
“Except as permitted under the Copyright act of 1976, no part of this work may be reproduced in any form or by any electronic or mechanical means, including the use of information storage and retrieval systems, without permission in writing from the copyright owner. Requests for permission should be addressed in writing to [copyright owners name and address].”
19. To go even a step further you can give a blanket permission for a specific use to lessen the burden of giving repetitive permissions for the same or like uses that are acceptable to the copyright owner. This includes what is known as a “conditional” permission for a specified use, with a statement as follows:
“Permission is granted to reprint the [portion] of this work to [who can reprint] for the sole use of [limitation of use] with the above copyright notice included on the reprint.”
Getting Permission
When you want to use a copyrighted work, the first rule of thumb is to always get permission when in doubt whether your use is a fair use or not, because it is not always clear if a use is qualified under the fair use exception, and it can be risky to assume that you may come under the fair use or any other exception. Always ask for permission prior to your actually using the work, to not appear to be disrespectful to the copyright owner, or to let on that you are desperate to get permission if you already have a significant investment in using the copyrighted work. Second rule of thumb, secure your permission first, and then use the work.
Getting permission, even including a no charge permission for a commercial use can sometimes be a matter of how you approach the copyright owner, and understand their perspective and concerns. Usually a copyright owner is concerned about two things, first is your proposed use going to affect their commercial viability, and second is your use going to alter the public perception of their copyright.
1. The first step is to identify the owner of the copyright, this sounds deceptively easy, but can be difficult, and is vitally important to prevent the scenario of someone who represents themselves as a owner takes money from you and gives you permission to use the copyrighted work, and you find out later that you do not in fact have permission from the true owner. As a caution, the copyright notice on the work may be incorrect or the ownership has changed hands since the work was published. Also, just to complicate things more, the derivative rights in copyright, such as the movie rights to a book, can have different owners. There are many different ways to confirm ownership, one is through a search of the Copyright Office records, and the important thing to remember is that you want to be highly certain that you are dealing with the true owner(s) of the copyrighted work.
2. The next step is to define exactly what your use of the copyrighted work will be, the owner will want to know this in detail to ascertain their commercial and public image risk if you are given permission. Other issues are exclusivity, term, territory, and fee if applicable.
3. The following step is to “sell” your use to the copyright owner, especially if you are asking for a no fee arrangement, stressing the benefit either being direct or indirect to the copyright owner.
4. As always, get everything in writing to completely clarify what was actually agreed to and to later protect yourself should a later dispute arise.