 |
| Maria Peyman |
 |
| Anousha Vasantha |
However, there are thought to be no less than 30 Barbie movie collaborations, including with the Gap Inc., Kipling, Impala Skate, Superga, Crocs Inc. and Ruggable LLC.
Despite this, License Global reported in July that the Walt Disney Co. still tops the Global Licensors Report 2023.[1]
When one thinks about the value to be derived from IP assets, one can think of selling the IP. While this suits those who no longer want to exploit the IP themselves, for those that want to continue to benefit from the exploitation of the asset, licensing is the obvious answer.
Licensing is a lucrative way for brands to obtain value from their intangible assets — it has become part of many brand owners' long-term growth strategies.
One of the more surprising collaborations this year was H. J. Heinz Co. and Absolut Vodka teaming up for a new pasta sauce.
Another example from May is bringing haute couture to the high street through the collaboration between Mugler and H&M Co. Inc.
Licensing is by no means limited to a specific type of IP asset. All forms of intellectual property can be licensed — for example, trademarks, patents, copyright, designs and trade secrets — but the obvious benefit of registered rights is that they are capable of being clearly defined in the license agreement, and can be more profitable than unregistered rights.
Patents are licensed all the time to enable technology developed by one entity to be used in the products of another. For example, in late June, Nokia Corp. announced that it had signed a new long-term patent license with Apple Inc.
Care must be taken with copyrighting when it comes to ownership: It must be clear what copyrighted material can be used by the licensee.
The nature of the assets may require the right to use a number of assets benefiting from multiple forms of intellectual property protection and the license needs to reflect that.
Regardless of the size of the party licensing their IP, what lies at the heart is a carefully negotiated license.
Prior to entering into an IP license agreement, parties should ensure that any confidentiality agreements are discussed so that the license agreement clearly defines the approved purpose for sharing confidential information. Some parties will want to ensure that confidentiality obligations continue long after termination of the license agreement.
Benefits of IP Licenses
Licensing brings many benefits. The most obvious is the financial benefit through royalties.
Licensing IP allows the licensor to gain a supplementary income stream, and it can often reduce costs and time if the IP is licensed to a party that already owns the requisite technology or the means to get the product or service to market, particularly with patents.
Another benefit to licensing is the boosted awareness that comes with licensing.
By establishing cross-industry partnerships with other brands, licensors can tap into new industries with little investment.
The first tie-up of this nature was, arguably, when Aston Martin featured in the James Bond film "Goldfinger" in 1964. This is an example that lives on into the more recent films, but the number of collaborations has grown.
More recent examples are LEGO System AS teaming up with IKEA for storage solutions, and Disney collaborating with Make-up Art Cosmetics Inc. for a makeup theme based on Disney characters such as "Cruella" — reds and metallic hues for a strong look — and in time for the release of their new film "Aladdin" in 2024 — smoky metallic and desert shades.
The possibilities are seemingly endless. Naturally, this often leads to increased brand engagement from consumers across different areas.
This could be a significantly bigger audience, a particular demographic of audience considered to have more disposable income, or an audience that commands influence for a particular reason.
In turn, this increases the licensors' reputation in areas beyond their usual sector, as well as a possible increased market share in areas they may not have tapped into themselves.
A well-thought-out license, both in regard to the party to which you are licensing and the terms of the license, could generate a substantial increase in revenue for an organization or, in hard times, generate revenue that could change the fortunes of a business.
However, it is important for licensors to ensure that their reputation is not tarnished in any way by entering into a license agreement. As such, establishing clear quality control mechanisms in the agreement may be paramount to maintaining a high standard of quality.
Types of License
There are three types of IP licenses: a nonexclusive, exclusive or sole license.
Nonxeclusive Licenses
The majority of IP licenses are nonexclusive. This means that the licensee receives the right to use the licensor's IP and, crucially, the licensor can also license the IP asset to others and continue to use it themselves.
Within the parameters of a nonexclusive license, there may be restrictions on licensing the same assets to third parties.
For example, will it be possible to license those assets to competitors of the licensee, or is there to be a restriction on the number of competitors that it can be licensed to?
For an entity with many brands, it would not be unusual to split different goods or services into smaller groups, e.g., party ware bearing a particular design in a specific territory, thereby maximizing the number of licensees while ensuring a degree of exclusivity to each and every licensee.
Exclusive Licenses
An exclusive license only permits the licensee to use the IP.
In this instance, you may want a provision for what happens if the licensee does not exploit the asset as anticipated.
There may be a minimum guaranteed royalty rate regardless of the use to which the asset is put.
While on its face this may be attractive in terms of revenue, failing to put the asset to use may diminish its worth over time, particularly in the case of trademarks.
The solution to this is to have a function that if the asset is not put to use for a specific period of time, the licensor is entitled to terminate the agreement.
This allows the licensor to find another licensee that, in turn, could generate a more significant return but also maintain the profile of the asset in question.
An exclusive license may also see a change in obligation to fund maintaining any registrations.
Sole Licenses
A sole license allows both the licensor and licensee to use the IP, but it is limited to those two parties.
The obvious benefit to the licensee is that there will be no competition from third parties. However, from the perspective of the licensor, this could substantially limit the potential for revenue generation.
There is an additional drawback of the first and second forms of licenses, including what the future holds.
A nonexclusive license has commercial freedom for the licensor, and while it is unlikely that there will be an obligation on the licensor to grant other licenses, it can do so if it wishes.
This protects against an unforeseen rise in popularity in a brand, or an emerging technology that could make use of the technology contained within a patent, or the new relevance of an image or painting.
Terms of the License
At the outset of any commercial relationship there is often a rose-tinted approach to the future of the relationship. However, in order to manage expectations, the license needs to be clear in its terms.
To avoid any future conflicts, it is important for the parties to consider the long-term goals of the commercial relationship and ensure there is no ambiguity.
While the licensee will have a keenness to ensure that it has the freedom to work with the asset as its sees fit, the drive for the licensor is to maintain as much control over the exploitation of the IP asset as possible with the aim to protect its value and for when it returns.
Although control mechanisms should be in place to ensure the IP is being used in the way the owner intends and to protect the reputation and goodwill established in the IP, these mechanisms should also be balanced with the fact that the license agreement is a business partnership, and so care must be taken to allow both parties to thrive under the agreement.
Key Licensing Considerations for Parties
A licensor will want to ensure that the IP asset takes a certain form, in some instances this is imperative to ensure the asset remain in line with its registered representation.
An easy way to achieve this is to prescribe the permitted form of the IP asset and annex brand guidelines, or put in place an approval process for samples of the products, the packaging or new advertising campaigns that involve the licensed IP.
Some licensors may also want to have restrictions on the retailers the licensee can sell into. These are crucial factors in maintaining the reputation of the asset.
Another way to maximize potential return for a licensor is to allow licensees only in a particular territory, thereby having numbers of licensees around the globe. These licenses may also have different terms to take account of the impact of local law and the nature of the protection for the IP asset in a particular territory.
Clarity is, once again, key. A defined territory in which there can be changes, for example the European Union, may not be helpful, whereas naming each country may offer a clearer definition.
If there is the potential or even express provision for new IP to be developed under the license, a licensor will want to ensure that ownership of that reverts to them.
It is crucial then, that the agreement is properly drafted to state what happens in circumstances where improvements or modifications to the IP are made.
The duration of a license can vary significantly: Is it a short-term license to maximize sales through a limited collaboration, which is often prevalent in the entertainment and fashion industries, or is it a longer-term collaboration?
Either way, it is often expressed as a fixed period that can, if the relationship is flourishing, be extended.
Licensors should be wary about losing control over their IP assets when allowing licensees to commercialize their products and so a fixed period can allow an easier and more regular auditing process to make sure everything is running smoothly.
Ultimately the licensing of IP assets is about income generation, which comes down to remuneration, often by way of a royalty rate.
The industry sectors, established reputation and goodwill that the licensor has already generated in the marketplace will determine how valuable the IP is, and thereby the royalty rate that can be commanded.
Most licensors will want to have a minimum guaranteed royalty in place by the licensee over the course of the license agreement.
Although the licensee will be obligated to submit regular statements, the licensor may also wish to stipulate frequent auditing of the licensee's accounts to ensure they are complying with the terms of the license and to circumvent any unexpected surprises such as withheld revenue.
Nothing lasts forever — or so they say — which is why the provisions for termination are just as important as those for the duration of the license.
It is usual to allow a post-termination sell-off period for legitimately marked stock and sales during this period, and these will be subject to agreed control mechanisms and royalties.
However, this works when there is clear knowledge of the number of relevant products to be sold off and they are generally compliant with the overall requirements on quality to ensure that any pricing structures linked to the asset value are maintained.
Conclusion
Licensing can be attractive to small businesses and big businesses alike.
Small businesses could benefit from licensing their IP to established businesses particularly if the licensee is able to produce on a much bigger scale, thereby allowing the licensor to produce a higher volume of products than they would have normally been able to produce themselves.
In the current landscape, there are undoubtedly some risks with possible loss of control or the consequences arising from poor quality control management.
However, if these risks are managed properly and the licensee has a good reputation, IP licensing can form part of the overall business and IP strategy, and can make room for both parties to reap the benefits.
Maria Peyman is a partner and Anousha Vasantha is a trademark attorney at Birketts LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] https://www.licenseglobal.com/rankings-and-lists/top-150-leading-licensors - 27 July 2023.
For a reprint of this article, please contact reprints@law360.com.
