Should You License or Sell Rights in Intellectual Property

When a business or individual owns an intellectual property right (e.g. copyright, trademark, trade secret) the desire to monetize such rights arises.  This will require the intellectual property right owner to decide whether the rights should be sold or licensed.

A license is the transfer of less than all of the owner’s rights in the given property.  This means the owner retains some rights and the acquirer is given a “license” that allows for the limited use of the property rights so transferred.  A sale or, more technically, an “assignment” means that all of the owner’s rights are transferred to the acquiring party.  This means that the acquirer receives the absolute right to use the property transferred.

Many times when parties enter into a transfer of intellectual property rights, they may not define in their agreement the transfer by the proper technical term.  For example, the agreement may only say that a “transfer” is to be undertaken by the parties or that the owner is “granting” to the acquirer the given rights.  In these instances the intent of the parties would need to be considered to determine whether or not the parties intended for a license or assignment to occur.  Also, many types of intellectual property rights (e.g. copyright, trademark) require the transfer agreement to be in writing.  Consequently, great care should be given to the written agreement that gives effect to any transfer of intellectual property rights.

In general, licensing of intellectual property rights allows the owner to retain control over the distribution and use of such rights while earning a fee from the license.  This allows the owner to control who has access and use of the property right licensed.  The owner can better control the distribution and thereby retain control over the markets wherein the property can be sold.  Also, the owner retains control over future changes to the intellectual property and the development of derivative works.

A sale of intellectual property rights avoids problems that can occur with an ongoing relationship, such as a license.  A licensee-licensor relationship may entail support by the licensor and sharing of other, related technologies or proprietary information with the licensee.   In a sale transaction, the property transferred to the acquirer will be defined and limited to the subject of the sale transaction.  A license will require that the licensee report accurately sales of the licensed property and royalties payable to the licensor.  A sale will thus avoid the problem of the licensee failing to accurately report and pay royalties to the licensor.  Another problem that can arise occurs when the licensee underperforms as was expected when the license was entered into.  Depending on the terms of the license, the licensor may be forced to continue working with the underperforming licensee until the expiration or other termination of the license.   In a sale, there would be no concern about the licensee’s performance after the transfer.

This discussion is not legal advice, a solicitation of you as a client, nor the engaging in the practice of law in any jurisdiction.  This discussion is merely for information/education and should not be relied upon for legal advice by anyone because the facts discussed may be different from your own situation.  If you need legal advice, consult a qualified attorney.  For more information please visit my website at http://www.palacioslawoffice.com.

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About Elio Palacios, Jr.

Attorney Elio Palacios, Jr., represents individuals, corporations, entrepreneurs, small businesses, startups and early stage businesses, physicians, dentists, and healthcare businesses in corporate, business and commercial transactions and litigation. He also counsels employers and individuals on visa, immigration and naturalization matters. Visit www.PalaciosLawOffice.com to learn more.
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