LICENSING:
A license is a contract between the owner (the "Licensor") of a patent, trademark, and/or copyright and a person or company (the "Licensee") that wants to: make and sell products under the patent rights, use the trademark in connection with the marketing and sale of certain products or to reproduce a copyrighted work under the copyright. Patent, trademark, and copyrights are rights created under federal law. In contrast, a license agreement is governed by state law. The terms and conditions of a license agreement vary widely from contract to contract depending upon many factors, including whether the property right being licensed is a patent, trademark or a copyright.
TRADEMARK LICENSE
In a trademark license, the trademark owner (the "Licensor") grants a person or company (the "Licensee") the right to use a trademark (registered or unregistered) in connection with certain products or services. In return for the grant under the trademark rights, the Licensee typically pays the Licensor a royalty on the sale of any product bearing the trademark. Like a patent license, we typically counsel clients to base the royalty upon the gross sales of the products sold by the Licensee. Gross sales can be easily reported and verified. In this regard, most trademark license agreements include a provision for auditing. Trademark licenses based upon gross sales have a royalty rate in the range of three percent (3%) to twenty percent (20%) or more. The royalty rates vary widely based upon a number of factors, including the strength and recognition of trademark. For example, famous trademarks such as most of the Walt Disney characters add significant value to any product they are displayed on. As such, a trademark license from Walt Disney for any of its famous and well known characters typically demands the payment of a very high royalty. Trademarks that are not well known are less valuable to a Licensee and the Licensor receives a significantly lower royalty. A single trademark is often licensed for different products. For example, the trademark owner may grant a license to one company to sell clothing and grant another license to a different company to sell furniture. A trademark license may grant a company an exclusive license or a non-exclusive license. The grant of an exclusive license is typically more valuable to a Licensee and, as such, addition terms and conditions can be included in the License Agreement to maximize revenue and protect the Licensor. For example, a Licensor may charge a higher royalty for the grant of an exclusive license and may require an up front non-refundable payment that can be applied by the Licensee against the future payment of royalties to Licensee. A Licensor may also require the Licensee to make minimum annual sales. For example, if minimum annual sales are not achieved by the Licensor then the Licensee may have the option of terminating the license agreement and granting a licensee to another Licensee who has more motivation to market the products under the trademark. A trademark license agreement must contain strict provisions covering quality control of all product that will bear the trademark. Most trademark license agreement provide that a sample of the product and any printed material bearing the trademark must be reviewed approved buy the Licensor prior to any marketing and sale of the product or distribution of printed materials. In that trademark rights are created and maintained by use of the mark, any trademark licensee agreement should clearly provide that all use of the mark inures to the benefit of the Licensor. In short, like any other contract, the Licensor and the Licensee are free to negotiate and craft the trademark license agreement in any manner that meets their respective needs so long as the license agreement does not violate any federal and/or state laws.PATENT LICENSE
In a patent license, the patent owner (the "Licensor") typically grants a person or company (the "Licensee") the right to make, use and sell products or processes covered by the claims of the patent. In return for the grant under the patent rights, the Licensee typically pays the Licensor a royalty on each product that is sold. The royalty may be based upon the number of units manufactured, the profit realized by the Licensee from the sale of the products, or simply the total gross sales of product sold by the licensee. We typically counsel clients to stay away from basing the royalty upon the profit's of the Licensee as the accounting necessary to determine profit's can vary widely from Licensee to Licensee and id is often difficulty to verify thereby resulting in unnecessary disputes during the term of a license. Quite often, the royalty is simply based upon the gross sales of the Licensee. Gross sales can be easily reported and verified. In this regard, most patent license agreements include a provision for auditing. Specifically, the patent owner may elect to conduct an audit. If the results of the audit reveal an underpayment of royalties from what was reported by the licensee by an agreed percentage (for example, 5 %), then the Licensee pays for the audit and pays to the patent owner any royalties owed to the Licensor. Patent licenses based upon gross sales have a royalty rate in the range of three percent (3%) to ten percent (10%). The royalty rates vary widely based upon a number of factors, including the strength of the patent and the ability of competitors to design around the patent rights. A patent has significantly less value to a Licensee if its competitor(s) can sell a product that is similar but does not infringe the patent rights. Indeed, a competitor can sell a competing product for a price less than then the Licensee because the Licensee cost of the product includes the royalty paid to the Licensor. Some patent license agreements have deceasing royalty rates as sales of the product increase above certain amounts thereby giving the Licensee incentive to promote and sell the product. Some patents have broad claims that would cover products in different field of use. In this situation, the patent owner may grant a license to a company to sell products covered by the patent in one specific field of use while granting another company a license to sell product in a different field of use. We carefully review the claims of the patent to determine whether or not the claimed invention has multiple applications across different fields of use to maximize the overall revenue received by our clients by licensing their patent rights. A patent license may grant a company an exclusive license or a non-exclusive license. The grant of an exclusive license is typically more valuable to a Licensee and, as such, addition terms and conditions can be included in the License Agreement to maximize revenue and protect the Licensor. For example, a Licensor may charge a higher royalty for the grant of an exclusive license and may require an up front non-refundable payment that can be applied by the Licensee against the future payment of royalties to Licensee. A Licensor may also require the Licensee to make minimum annual sales. For example, if minimum annual sales are not achieved by the Licensor then the Licensee may have the option of terminating the license agreement and granting a licensee to another Licensee who has more motivation to market the products covered by the license. In short, like any other contract, the Licensor and the Licensee are free to negotiate and craft the patent license agreement in any manner that meets their respective needs so long as the license agreement does not violate any federal and/or state laws, including the federal unfair competition laws (also known as the federal antitrust laws).
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