Commercial IP

What is the difference between distribution, franchise and licensing arrangements?

A license agreement is an agreement in which a licensor authorises acts that would otherwise constitute an infringement of its intellectual property.

In a distribution arrangement, a distributor buys goods from the IP owner and on-sells them for profit. The distributor may need to use certain trade marks to advertise the goods for sale, but does not purport to be the originator of the goods or the owner of the trade marks.

Franchising, on the other hand, is aimed at enabling a licensee to replicate an entire business model. At its core, franchising is a license arrangement that grants a third party the right to use certain IP, but the nature of the IP distinguishes it from other license agreements.

What key aspects should I consider when granting IP licenses to others?

You should consider:

  • identifying the licensable interest (i.e. the IP that would be infringed by the licensee in the absence of the license);
  • the term and territory of the license (having regard to the IP that forms the subject of the license);
  • the acts that the licensee is authorised to perform in relation to the IP (e.g. is the licensee authorised to make, use or sell the patented product? Is the licensee authorised to use a trade mark as a corporate identity?)
  • The consideration payable in exchange for the grant of the license
  • The right of the licensee to grant sub-licenses or assign the license
What due diligence should I do when considering obtaining a license for IP owned by someone else?

In this case, you should consider:

  • The relevance of the IP to the product/service you want to commercialise
  • The validity of the IP (especially where an application for a registered IP right has not undergone substantive examination during prosecution)
  • The scope of the IP and its ability to limit competition
What is tech pooling or cross-licensing?

Technical development is often undertaken collaboratively, so that different contributors own different parts of the IP associated with a product.

It may make sense for all contributors to pool their respective technologies so that each person can make and sell the best version of the product, rather than each contributor selling an inferior product.

Similarly, where two or more parties have IP relating to a product, they may cross-license each other to enforce a monopoly against other competitors.

What should I consider when engaging a service provider to provide services?

When engaging a service provider who may create IP, such as copyright works, inventions or designs, while providing the services, it’s important to consider whether you expect exclusive use of these.

For example, if you paid for the development of a computer program, or the drawing of an artistic work, do you expect that only you will have the right to use or reproduce that work?

You should also consider whether the service provider should be the only person who is entitled to supply the developed goods/services to you.

For example, if you pay for the development of a piece of equipment by a supplier, is the intention that this supplier will be the only person who is authorised to supply the equipment to you?

The provisions relating to the ownership and use of resulting IP must clearly reflect both parties’ agreement when it comes to exclusive benefit to the client and exclusive supply by the service provider.

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