What is a License?

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 rights 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 Licenses

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 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.

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.

It is important that great care be taken in drafting any agreement affecting intellectual property rights and it is always advisable to have such agreements settled by an attorney experienced in this field.