An IP licence is a permission — it allows someone else to use your intellectual property (or gives you the right to use theirs) without transferring ownership. Whether you are licensing your IP to a third party, or taking a licence in, the terms of the licence determine what you are actually agreeing to.
Exclusive, Sole, or Non-Exclusive
- Exclusive licence — only the licensee can use the IP in the licensed territory and field. Even the owner cannot grant the same rights to anyone else. An exclusive licensee has strong rights, including the ability to bring infringement proceedings in their own name.
- Sole licence — only the owner and the licensee can use the IP. The owner cannot grant further licences, but retains their own right to use.
- Non-exclusive licence — the owner can grant the same rights to multiple licensees. This is the default position for most software licences and many brand licences.
If you are taking a licence in, exclusivity can be valuable — it prevents competitors from accessing the same IP. If you are granting a licence out, exclusivity significantly limits your commercial flexibility and should be reflected in the royalty.
The Scope of the Licence
The scope defines exactly what the licensee can do with the IP:
- What IP is licensed — specific trade marks, specific copyright works, specific patents, or a broader portfolio?
- What territory — UK only, EU, worldwide?
- What field of use — all products and services, or a defined sector or application?
- What acts are permitted — use, manufacture, sub-licence, adapt?
Licence disputes frequently arise from ambiguity about scope. Be specific. If the licensee is permitted to sub-license, say so explicitly. If they are not, say that too.
Royalties and Payment
Royalties can be structured as a percentage of net sales, a fixed fee per unit, a flat annual licence fee, or a combination. Consider:
- How is the royalty base defined? "Net sales" can mean different things to different people.
- Is there a minimum royalty — a guaranteed minimum payment regardless of actual sales?
- How and when are royalties reported and paid?
- Do you have the right to audit the licensee's accounts to verify royalty calculations? An audit right is standard in IP licences and important — it is your only independent check on whether you are being paid correctly.
Quality Control — Brand Licences
If you are licensing a trade mark, quality control provisions are essential. Under UK trade mark law, a trade mark can be revoked if it is used in a manner that is liable to mislead the public as to the nature, quality, or geographical origin of the goods or services. Uncontrolled licensing — where you have no oversight of how the licensee uses your mark — creates this risk.
The licence should require the licensee to comply with your brand guidelines, submit samples or examples of use for approval, and allow you to inspect and audit quality. These provisions protect your trade mark as much as your reputation.
Termination
When and how can the licence be terminated? Consider:
- Termination for breach — what constitutes a material breach? Is there a cure period before termination?
- Termination on insolvency of either party
- Termination at the end of the agreed term — is it renewable, and on what terms?
- What happens to the licensee's existing stock or contracts on termination?
Bonsai Law drafts and reviews IP and brand licence agreements for businesses across the UK. Whether you are licensing in or out, we make sure the scope, royalties and quality control protect your position.
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