Concept of Licensing in IPR: Meaning, Features and Types

Licensing

In order to understand the concept of licensing of intellectual property rights, we must first understand what a license is. A “license”, simply understood, is a permit or consent given by the owner of a property to another, authorising such other person to use the said property. Licensing is a contract between two parties, referred to as the “Licensor” and the “Licensee”. The Licensor is the owner of the property, who, by way of the contract, agrees to/allows the Licensee, to share the rights enjoyed by the Licensor by virtue of owning the subject property. This sharing of rights is known as a “License”, in favour of the Licensee. In return for the License, the Licensee agrees to pay to the Licensor, an agreed payment, known as “Royalty”. License contracts are entered into for a specified duration of time, after which, they can be extended or terminated, depending on the specifics contained in the contract.

This basic contractual concept is as easily applicable in the context of intellectual properties as well. In an intellectual property license, the Licensee is permitted to use the intellectual property. However, like any other valid contract, a License Contract must also comply with the essential ingredients of a valid contract, as contained under Sections 10 and 11 of the Indian Contract Act, 1872, namely, the contract must be between persons who are competent to contract (have attained the age of  majority); of sound mind and not disqualified from contracting under any law; free consent of parties; with a lawful object; and for a lawful consideration.

Up until a few years ago, multinational companies were hesitant to create a presence in India on account of the difficulty in business (protection of intellectual property, being one of many factors). The Supreme Court of India, in its 1996 judgment of N.R. Dongre & Ors. Vs. Whirlpool Corporation & Anr.1 opined that International Companies which have international trademarks and enjoy cross border reputation can protect their IP in India without having physical presence in India. Licensing plays a major role in the development of international trademarks, copyrights and patents, and help further the interest of the economy. Let us see how.

Who has authority over IP?

The very objective of intellectual properties and their protection is to grant the owner/proprietor/author the exclusive rights to use the intellectual property. However, this exclusive right can be transferred or shared, with the consent of the owner/proprietor/author’s permission, or in some cases, by statute.

For example, the owner of a copyright, has the right to license or assign the copyright to another, with such terms and conditions, and for such duration as he may deem fit. Further, the copyright can also be permanently transferred to another by way of assignment, for a specified sum of money, through a “Deed of Assignment”.

The authority or right to use an IP, can even be shifted by the law. For example, the  Patent Act, 1970, provides for “compulsory licenses” being made available to third- parties, for the production of a product or use of a process, which is the subject matter of a patent, without the permission of the Patentee, in the event that such product or process, is essential for the public, whose requirements are not being fulfilled; the product or process is not being provided at an affordable price; or the patented invention is not available in India. Compulsory licenses are usually granted for life-saving drugs, to ensure their ready availability and affordability for the masses.

Salient Features of a License

As we have already studied above, a license can be granted by way of a Licensing Contract or a “Licensing Agreement” and this agreement must conform with all the essential features of a valid contract.

There are some features, that every Licensing Agreement must contain. We will try and understand these features, from the practical standpoint of Clauses contained in a typical Licensing Agreement. These are as follows:

  1. Parties: Parties must be clearly identified as “Licensor and Licensee”, along with their addresses.
  2. Recital Clause: This clause explains the background of the agreement. It contains what the intellectual property rights are owned in and what they are to be used for.
  3. Definition of Licensed Property: This clearly defines the intellectual property.Usually, license agreements contain an attached schedule that provides a complete description of the property.
  4. Jurisdiction: This defines the territorial limits to which the license extends.
  5. Grant: This defines the scope and the rights that are accorded to the licensee and any limitations.
  6. Term: The duration of the license cannot exceed the term of protection accorded to the IP by the statute.
  7. Consideration: For IP Licensing Agreements, consideration takes the form of royalties payable by the Licensee to the Licensor. These may be monetary or even in the form of cross licenses, which involves granting a license to a party in return for a similar license being granted to the licensor.
  8. Confidentiality: This clause prevents the Licensee from gaining any additional benefits by disclosure of information of the license.
  9. Warranties: These are promises made by either party to the other, the breach of which results into a claim for damages.
  10. Indemnity: This involves the financial responsibility taken by parties for any loss or damage or penalty etc. occurring to one party by any act or omission of the other. It also provides for what constitutes “infringement” and the consequences thereof.

Types of Licenses

There are three major types of licences with are recognised by the India Law and the World Intellectual Property Organisation (“WIPO”). These are:

  1. Exclusive Licenses: This type of license involves the exertion of Intellectual Property Rights of the Licensor by the Licensee to the exclusion of all, including the Licensor himself. Thus, only the licensee is authorised to use the intellectual property. Exclusive licenses are often granted with respect to specific geographical locations.
  1. Sole License: In this type of license, while the Licensee is permitted to use the intellectual property, the Licensor is also authorised to use the same, however, such rights cannot be transferred to any third party. Only the Licensor and Licensee may exercise these rights.

The apparent difference between exclusive and sole licenses is that the former does not allow the Licensor to use the property, while the latter does.

  1. Non-Exclusive Licenses: This license allows for the Licensee to exercise the  rights as well as keeps open the scope for the Licensor to exercise his rights to further license these rights to any other third party.

Any Licensing Agreement for an IP is usually a combination of these three types of licenses.

Besides these duly recognized forms of licenses, there exists the concept of “Compulsory Licenses” under the Patents Act, 1970, which prevent the abuse of patent as a monopoly and to make way for commercial exploitation of an invention by an interested person. Under section 84 of the Patents Act, 1970, any person can make an application for grant of a compulsory licence for a patent after three years, from the date of grant of that patent, on any of the following grounds:

  • The reasonable requirements of the public with respect to the patented invention have not been satisfied;
  • The patented invention is not available to the public at a reasonably affordable price; or
  • The patented invention has not worked in the territory of India.

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

If you are interested in participating in the same, do let me know.

Do follow me on FacebookTwitter  Youtube and Instagram.

The copyright of this Article belongs exclusively to Ms. Aishwarya Sandeep. Reproduction of the same, without permission will amount to Copyright Infringement. Appropriate Legal Action under the Indian Laws will be taken.

If you would also like to contribute to my website, then do share your articles or poems at adv.aishwaryasandeep@gmail.com

We also have a Facebook Group Restarter Moms for Mothers or Women who would like to rejoin their careers post a career break or women who are enterpreneurs.

We are also running a series Inspirational Women from January 2021 to March 31,2021, featuring around 1000 stories about Indian Women, who changed the world. #choosetochallenge

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.