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A Brief Overview on Technology Licensing

A Brief Overview on Technology Licensing

Generally speaking, technology licensing is the exchange of intellectual property (IP) between two parties in which one party gives another permission, or license to use the first party’s IP. Technology licensing is an agreement that is quite similar to a rental agreement. In most rental agreements, a landlord permits a person to occupy one of the apartments for a specific amount of time in exchange for monthly rental payments. In a technology licensing agreement, the intellectual property owner, also known as licensor, will provide a party, licensee, the opportunity to use the IP for a specific period of time in exchange for payments known as licensing fees or royalties. Notably, in technology licensing agreements, the ownership of the IP is not considered transferred; just as ownership to the real estate is not transferred under the lease. Instead, the licensed IP will only be granted through specified permissions. 

While comparing a licensing agreement to renting an apartment is a good place to start, the likeness does not begin to measure the complex differences between a physical place and an intangible asset. It is important to keep in mind that having a tangible asset such as an apartment complex is finite, most licensed IP are not limited in physical quantities. 

The Significance of Intellectual Property in Today’s Global Economy

In the present day global economy, the importance of intellectual property cannot be overstated. It is very difficult to identify any industry where intellectual property does not have an essential role. It is important to recognize that in the last forty years, the roles of tangible and intangible goods have significantly changed. For instance, in the 1970’s, tangible assets accounted for over 80 percent of the market whereas intangible assets and goods accounted for roughly 17 percent of the market cap. Today, the values of each have been inverted. In 2015, intangible goods now account for over 80 percent of the market cap and tangible assets only represent 16 percent. The message is clear: it is evident that intangible assets, like IP, play a significant role in the global economy, and it is critically important to understand how to properly exchange intellectual property between parties. 

Technology Licensing Agreements

Every technology licensing agreement will be different depending on the type of intellectual property involved.   Generally, the basic types of intellectual property are: trade secrets, patents, trademarks, and copyrights. Trade secrets and patents alike focus on the protection of the technology. These are usually viewed as being two sides of the same coin. Trademarks, on the other hand, focus on the branding of the asset rather than on the technology itself. Finally, copyrights focus on the protection of the content, which is fixed on a tangible medium as opposed to the technology incorporated in the content. 

A rudimentary aspect of intellectual property is acknowledging that IP rights are grounded in exclusionary rights as opposed to affirmative rights. In essence, intellectual property rights allow IP owners the right to prevent or exclude others from using or practicing their rights. Their IP rights do not give owners an automatic ability to use or practice the IP  rights and this can be difficult for newcomers to understand. Still, it is an important concept to take into account when it comes to IP licensing. 

The Different Types of Technology Licensing Agreements

Licensing agreements will vary based on the intellectual property involved as well as the industry. The following are considered top-level categories of licensing agreements. 

1. Exclusive Agreements versus Non-Exclusive Agreements

A key aspect of technology licensing agreements is determining if the licensing grant will be considered exclusive or non-exclusive. In exclusive agreements, the asset will only be licensed to a specific and singular party. The licensor cannot provide rights to the use of the technology to other parties. Simply put, the licensee will have exclusive rights to the use of the technology. Since the technology owner cannot further license the asset to other parties, the fees obtained from the license by the licensee are usually higher than the fees paid in non-exclusive licensing agreements. 

In non-exclusive licensing agreements, licensors are allowed to license the asset to multiple parties. Here, licensing agreements are not exclusive to one sole licensee. Consequently, the licensing fees paid by licensees will usually be lowered compared to exclusive licensing agreements. Of course, there are many other factors that impact this exclusive vs. non-exclusive dynamic as well, if you grant an entity an exclusive license to sell your work in a Territory, typically you will require some minimum level of performance or commitment to justify excluding other avenues to develop that territory. So you might establish a minimum quote or simply require the Licensee train and deploy a certain size sales staff, to promote the sale of your product.

2. Patent Licensing Agreements

Through the patent license, patents rights are provided to the licensee. Under the terms of  a patent licensing agreement, the licensor agrees not to file a lawsuit against the licensee for the infringement of the patent. It should be noted that in patent licensing agreements, licensors are provide licensee with only those stated license right, and they are not providing licensees general permission to otherwise use or commercialize theasset claimed in the patent since. . 

3. Trade Secrets and Know-How Agreements

Trade secrets and know-how agreements are very common forms of licensing agreements. In these agreements, the licensors will allow licensees the opportunity to use and commercialize the licensor’s trade secrets. Here, licensors provide affirmative permission to use the technology personified by the trade secret. 

Further, trade secret agreements also include what is referred to as know-how. Know-how covers a broader range of information relevant to the use of technology than trade secrets. It provides additional background for the use of the technology. In some respects, trade secrets can be considered a subcategory of know-how. 

Trade secrets are often used with other forms of licensing, for instance most commercial software licenses relay upon copyright and trade secret. It’s useful to know trade secrets are indefinite in term unlike a patent or a copyright protection, if you maintain its status the protection is perpetual. When you are seeking prompt injunctive relief it is also very useful to rely upon a work’s trade secret status.

4. Software Licensing Agreements

Software licensing agreements are also very common types of technology licensing agreements. Typically, anyone that has used the Internet or a computer has encountered this type of agreement. Software licensing agreements are usually recognized as a hybrid of trade secret, copyright, and know-how licensing agreements as the technology owner will provide permission to use the software under certain conditions and for specific purposes. 

Reputable Technology Licensing Attorney

Every business has the capacity to generate significant economic value with strategic development, licensing, and commercialization. Nevertheless, structuring, documenting, and negotiating these complex transactions perspicaciously is critical. 

Technology Attorney John P. O’Brien understands the nature and value of technology licensing agreements. With more than 30 years of dedicated experience, he understands the intrinsic needs of start-up and established businesses in the area of media and technology. If you are a tech innovator, Attorney O’Brien can help your vision become a reality. Consider contacting him by calling 1+(732) 219-6641 or fill out the confidential contact form today. 

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About the Author:

John P. O'Brien - Technology Attorney


We represent buyers and sellers of IT products and services, cloud based SaaS offerings and software licensing matters. Whether you are contracting to purchase services, acting as a subcontractor, or looking to bring your application to market, our firm is well positioned to assist and guide you. Please contact me for a free consultation if you or the organization you work for is tired of trying to develop, negotiate and/or modify consulting contracts, licenses, SOWs, HR agreements and other business and related financial transactions.... View full business profile here: John P. O'Brien - Technology Attorney





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