By Stephen Taylor - Of Counsel
[Ed. Note] This piece will assume that you own valid, potentially enforceable intellectual property rights. The purpose is to pose questions to consider before granting others permission to use, reproduce or otherwise associate your work with their name or brand.
Intellectual property is anything from a trade secret (a business attribute not known to third parties), an image, a design theme that customers associate with you, a sound, written text like this article, through to a Patent for an invention or process. This piece will assume that you own valid, potentially enforceable intellectual property rights. The purpose is to pose questions to consider before granting others permission to use, reproduce or otherwise associate your work with their name or brand.
One common error is the inadvertent granting of a broader license than is necessary. Typically, when someone wishes to use intellectual property from a third party there is a specific purpose in mind. When granting rights to a third party, a starting point should be to closely ascertain and define the scope of the required grant because this is a significant determinant of the remuneration that you should look to receive.
For example, imagine that you have created an image. If a third person or company wants to use it in an advertisement on local TV, you should ensure that the grant doesn’t convey rights to global use, geographically or in terms of market sector, even vertical. If I want to use your device in, for example, a water purifier, the grant should be consistent to that usage but also delve deeper into the nature of your market penetration, now and in the future. This inquiry runs closely parallel with ethical and reputational questions for many. Do your research on the other party. Do you feel comfortable being associated with them or their product?
Returning to the example of an image for illustrative purposes, a visual used in one market may have validity in another but a blanket license, even if not exclusive, can lead to problems. The second potential user may lose interest if it realizes that another has rights to it. More concerningly, the first user may have already established brand linkage and feel that is being diluted. As another typical trap example, the manufacturer of large industrial water purifiers referenced above may fill only a small percentage of the relevant market for the device, geographically or in terms of market segment. In both cases, if you do not clearly specify limits for any grant, you are likely to lose revenue potential and may in fact incur legal risks. It is important to be on your guard. If a party seeking to license your IP will not divulge its intended use and geographic or other boundaries that should be a big red flag. Would you lend your vehicle to a stranger without condition or guarantee? The focus should not just be on the present, but also future intentions: lack of specificity may lead to direct conflict between license holders as one or more looks to penetrate broader associated markets.
What happens if the party you are licensing it to is bought out? Does the license transfer and at the same price? Suppose the buyer wishes to use an alternative technology? Are you able to rescind? If the licensee withdraws from the market or ceases production, are you protected? Is the grant limited in duration or to a particular product, campaign, or initiative? All these questions are illustrative not exhaustive. The message is, again, that the IP holder needs to be extremely specific as to the extent of any grant of rights and that this requires a detailed understanding of the business and intentions of any party to which rights are granted, to protect the value of the asset and the potential for further commercialization.
Defining conditions for retention of rights is as important as scope. One technique is a guaranteed minimum usage fee. Most licensees won’t object to a minimum payment if that is reasonable and netted off against actual usage, but specific remedies need to be in place in the event of non-use or business transfer. In the visual or auditory rights fields particularly (though it can apply elsewhere) is there a clause that deals with unethical or otherwise damaging use? In addition to one’s personal moral code, other licensees may not be happy if something they used becomes associated with negative connotations by the use of another, even if the areas of use are widely different.
Finally, it is worth asking the question of whether to license at all. This is often a particularly pertinent consideration with trade secrets. A trade secret only has value if it remains secret. Allowing another access comes with all sorts of issues that are not only relevant to the scope of a grant but in ensuring that there is anything to grant at all in the future. Licensing trade secrets requires rigorous conditions in any negotiation, well before any eventual agreement. A secret being discussed with potential licensees must be protected just as strictly as any eventually licensed. A second key consideration is willingness and resources to enforce your rights. Without this, it may be the best strategy to simply keep quiet (and look at internal protections against disclosure). This is often a key discussion for IP that has internal commercial value. I have often experienced the belief that a patent solves everything. This is not necessarily true. Is the patent of adequate scope to restrict competition, for example. If the patent isn’t granted or capable of sustaining a challenge or protection, you may have given your property, or commercial advantage, to the public domain and thus greatly diminished its value if not rendered it valueless. Patent rights exist as a reflection of a public policy intended to incentivize expansion of public knowledge by stimulating innovation through the promise of a monopoly of control over the invention for a limited time in return. This often gets lost in popular perception in the modern world. Of course, the contribution can be challenged and must meet certain criteria to merit the reward. For this reason, as well as the objective of adding to the public domain eventually, Patent applications reveal the details of the invention.
If your trade secret, patent, or any form of IP isn’t capable of surviving a challenge (or you are not ready, willing, able and have deep enough pockets to enforce any rights), think hard before proceeding. Otherwise, in looking to formally reserve your legal rights, you risk voluntarily handing your competitors an important competitive advantage or asset. It is equally critical to understand and commit to enforcement. Without that, if knowledge gets out through suppliers, contractors, images or any other method, competitors may have reason to thank you.
Once something is in the public domain, it can’t generally be recovered. What is protected in the United States may not be protected elsewhere, and in today’s world, ideas, products, and inventions can be transmitted and distributed instantly. Understanding the scope of protections and where they apply in practice, what is involved in maximizing the scope of protection (and how realistic ensuring efficacy of rights protection that is in practice) before releasing your intellectual property is essential. Seek advice before you proceed, preferably as soon as you determine you have IP that may have commercial value to you or others. Develop a strategy in advance if possible and certainly don’t jump at the first offer to commercialize your hard work, as many have to their cost. Be prudent and know your IP’s scope and value together with your options. Have a plan and follow it.
