What is Licensing?
Licensing refers to the granting of permission by the owner of intellectual property rights to another party to use or commercially exploit that protected intellectual property.
Every type of intellectual property can be licensed in some form or another. Here's a short list and explanation of the main types of IP and what licensing each might look like.
Copyright Licensing - A copyright owner may grant a license to allow others to reproduce, distribute, perform, or display their original works, such as books, music, artwork, or software (to license any of the exclusive rights vested in copyright ownership). Importantly, licenses can be as limited or narrow as the copyright owner wants - i.e. a single use or just seconds of content.
Example: A photographer owns the copyright in photos from a fashion shoot and licenses the use of those photos in the magazine.
Trademark Licensing - Trademark owners may license their marks to other businesses for use on products or services, providing brand recognition and market expansion opportunities. You'll see this often in brand distribution deals where brands award licenses for use of their logos.
For example: An apparel or goods manufacturer wants to sell merchandise with NFL team logos. This requires a license through the NFL to use the trademarked logos.
Patent Licensing - Patent holders may license their inventions to third parties, granting them the right to produce, sell, or use the patented technology. Patents are inventions or methods that the patent owner owns the exclusive financial rights in through the life of the patent.
For example: A nano-chip manufacturer grants Apple a license to use their patented chips in the next generation of iPhones. In fact, new devices almost always contain multiple patented technologies and patent owners.
Trade Secret Licensing - Trade secret owners may enter into licensing agreements to permit others to access and utilize their confidential information or know-how, subject to strict confidentiality obligations.
For example: A food recipe is protected, but the owner has licensed the recipe to franchise owners as a trade secret and under requisite trade secret confidentiality.
Obtaining an IP License
In certain cases like mechanical licenses (cover songs), the amount you may owe to license a work may be stipulated by law. But more often, the amount needed to obtain a license will be more subjectively determined through a negotiation with the intellectual property rights owner.
Often, the process will look like the following:
a) Identifying the Right Owner(s):
You can start with a registration search at the Copyright Office or USPTO or you can do your own sleuthing, but you will need to find the rightful IP owner from whom you would seek permission of use. Depending on the work, that might mean gathering information from multiple owners although you don't always need consent from all owners to license a work.
b) Assess the Scope and Limitations:
An important part of every license agreement is clearly defining the scope and limitations of rights and whether any rights granted are exclusive or non-exclusive. Sometimes this will involve a discussion of timestamps within a work (for example, a piece of music over a film intro) or other relevant information that clarifies the scope of the license. This might also include outlining geographical limitations, the duration of the license, and any types of restrictions that might apply, like exclusions or prohibiting sub-licensing.
c) Negotiate Fair Terms:
Start a constructive negotiation and do your best to establish fair and equitable terms for a license. You can begin a discussion simply by asking what their normal licensing fee is. Seek out someone to help facilitate, negotiate, and memorialize the license in writing. Entertainment attorneys are particularly helpful since they can spot and advise on potential clearance or copyright issues throughout the licensing process or negotiation.
Remember, there's tremendous flexibility in how to calculate the license fee - upfront payments, royalty percentages, percentage of sales, or some combination of all three.
Also, any maybe more important to remember, is that sometimes it may just not work out. Sometimes the fees will be out of your budget or more than you'd expect - this can happen. Every IP owner gets to set their own license rates and they are welcome to quote whatever they want - if that's thousands more than you'd thought and they won't negotiate, oh well, not much you can do. If it's something unique or popular, this is even more common.
d) Renewals and Post-Licensing Challenges:
If no fixed length is written, the license is typically granted for a reasonable period or is revocable at the will of the copyright owner.
You can also contract license renewals into your agreement contingent on any number of financial or qualitative markers. If sales involving the licensed work meet a certain threshold, you can contract a mechanism for the license to automatically renew. It can create a real incentive to market and sell the licensed work on behalf of the licensee and protects the licensor's interest at the same time.
You’ll also want to include clauses that determine methods for license compliance, grounds for license termination (like exceeding the scope of the license), and any other negotiable issue that licensor might require in granting a license to use his work.
Your license should cover the scope of the license, the parties involved, the duration, the license fee, and any other license-specific information. Where possible, be as specific as possible in your language and you’ll reduce your overall risk. You want to both maximize and protect your financial exposure. As you can imagine, it can help to consult a professional as well.