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LICENSING

How to License In Intellectual Property

When your company needs to use a process, concept, tool—or really anything that's protected by a patent, copyright, or trademark—here's how to license it, and avoid legal trouble.
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The world of intellectual property has suffered a shake up in the Internet age. Younger people used to the free-for-all nature of file-sharing and open-source documents are less accustomed to paying attention to the finer details of intellectual property rights. If they're not paying attention to who is owner of the copyright or patent, they won't know who might come calling for a paycheck if you use it illegally.

The worst thing that can happen, says Raymond Nimmer, dean of the University of Houston Law Center, says, is for your company to charge ahead with a big, successful product, only to find out some essential piece of it is subject to intellectual property rights.

"Then have them knock on your door after you spent the blood and sweat and say, "Oh you owe me something," says Nimmer, who teaches classes in intellectual property and information law.

Experts say to make sure to follow these steps when licensing intellectual property in to your company to avoid future legal hot water:

Licensing Intellectual Property: Do Your Research 

When developing a product, software, or service, the first step is to make sure no own else already owns the rights to it. And there's more things copyrighted than you may think, says John Toth, president and founder of Intellectual Property Shield, which offers IP courses and products for companies.

"It could be chiseled in stone, could be written on back of napkin," he says. "The idea of chocolate chip cookies can't be copyrighted, but a certain recipe can."

The issue is serious and complex enough that most experts recommend hiring a professional patent attorney. The attorney should do a full patent search and complete the due diligence early in the process.

Patents are awarded to invention that are novel and non-obvious improvements, which could include lots of things that will save you development time, Alexander Poltorak, author of the book Essentials of Intellectual Property, says.

"The most important thing is they should never try to do it themselves without the assistance of a patent attorney," Poltorak says. "That's a big mistake. You need to assess you risks, what it is worth, reasonable royalties. Or at least a consultant, somebody who is a patent professional."

 Once you conduct a patent search—which could involve potentially hundreds and hundreds of similar patents—and find the one you want to license in to your company, it's time to create a licensing agreement.

Dig Deeper: 10 Tips for Licensing Intellectual Property

Licensing In Intellectual Property: Draft the License

Determining how and when you can use someone else's invention usually involves a good deal of old-fashioned negotiating and a bit of compromise. That's because today's environment is so different from that a generation ago, when more of a company's innovation came from in-house engineers, Nimmer says.

He recommends visualizing that you're the programmer who created some new and effective software. Then, you get a call from a company looking to use the software for their own profit. What criteria would make that acceptable to you? You might want it only applied for certain things but not for others, so a business should know that it needs to be flexible.

"Its not just cookie-cutter kinds of negotiations all the time," Nimmer says.

Some intellectual property rights holders will want an exclusive agreement, which means you have to essentially buy the patent. Others will be open to a non-exclusive agreement, which allows them to sell the same invention to your competitors.

"Basically you're paying the money for the agreement not to sue you," Poltorak says. "There's a whole spectrum of possible arrangements depending on the arrangement the licensee wants to use."

Dig Deeper: Intellectual Property: Find it. Use it.


Licensing In Intellectual Property: Monitoring the License

Just because you've signed an agreement with the patent holder doesn't mean you're out of the woods forever.

You still have to make sure you're honoring the original agreement and not going far astray of the intended uses.

Nimmer says that as your product evolves, the original technology usually becomes less and less important. For instance, if you are building a bicycle with some brake technology you licensed, the braking system is not likely to need much tinkering throughout the product's lifetime.

"But if product is constantly changing adding new things, then there's a monitoring problem," he says.

The Internet-fueled age of file sharing and open-source software is making it more difficult for companies to stay vigilant, Nimmer says.

"As you go more towards Internet and this culture in which people trade ideas and code over the Internet, you wind up with a lot of things going into the product, through different departments, that you don't even know how it got there," he says.

It's important to remember that many licenses are usually chiseled out for one specific user, not for an entire company. That means you can't even print it the documentation on the property and pass it over the cubicle to another employee, Toth says.

"It's really basically understand that its use is for you, not for anyone else or not to pass on," he says. "That's the key to it, that's where you get in trouble."

Dig Deeper: How to Secure a Patent

Last updated: Jun 17, 2011

TIM DONNELLY is a freelance writer and managing editor of Brokelyn.com. His work has appeared in Billboard, The Atlantic, Thought Catalog, and The New York Post.
@TimDonnelly




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