As a foreign company with potentially valuable intellectual assets, such as a unique product design, distinctive brand or innovative technology, there will be various ways in which you can access or expand into the UK market — from product development to distribution and marketing. These types of arrangement will, however, require some form of licensing agreement for any UK-based business to be able to utilise your intellectual property (IP).
In this guide to UK licensing basics, we explain the main considerations when exploring licensing agreements and negotiating potential licensees.
What is a foreign licensing agreement?
A foreign licensing agreement is a written agreement to be able to use, subject to negotiated terms and conditions, the intellectual property of another person or business. In the context of licensing a product to sell in the UK, this is therefore the permission that you grant to someone else to do something that, without the licence in place, would be an infringement of your IP rights. This could include, for example, manufacturing, distributing or selling your product.
The person granting the licence, you, is usually referred to as the “licensor”, whilst the person receiving rights under the licence is usually referred to as the “licensee” — although there can be more than one licensor or more than one licensee within any given licensing agreement.
Intellectual property under a foreign licensing agreement can commonly include:
- Designs: for the unique way a product, or part of a product, looks
- Trademarks: for the distinctive branding of goods
- Patents: for technology in new products and processes
- Copyright: for original literary or artistic work, databases, software and images
- Confidential information: for trade secrets or ‘know-how’ used in a business.
This essentially means that where you have the exclusive right to a product, brand, technology, literary or artistic creation, or information that ordinarily you’d want to protect against disclosure, you have the right to grant permission to someone else — in another geographical location — to manufacture, market or otherwise use that property for their own financial gain.
Depending on the terms of the licensing agreement, as the licensor, you may receive in return a licence fee or ongoing royalties, whilst retaining ownership and control of your IP rights.
What are the benefits of a licensing agreement?
Foreign licensing is generally viewed as a supplement to exporting or manufacturing, rather than the only means of entry into the UK market, although licensing can prove to be extremely lucrative if put into place correctly. The benefits of a licensing agreement can include:
Sharing risk and cost: where a licensor grants the right to manufacture and sell products, they will receive revenue from that licensing arrangement without taking the risk of making, promoting and selling those products. Equally, the licensee has the right to use the IP without the expense and risk of the research and costs of developing the product;
Revenue generation: the owner of intellectual property can commercialise the IP itself, in this way obtaining additional income by licensing the IP to someone else to exploit it within a different field. Managing IP licensees who will work with a foreign business, on their behalf or pay them for the use of their rights, will help that business to increase its revenue and access the UK market without any significant increase in its’ own costs.
Increased market penetration: the licensor may license another business to sell in territories that they, as the owner of the intellectual asset, don’t have the resources or expertise to cover. This will enable the IP owner to infiltrate the UK market with low demand in terms of capital investment and commitment, whilst someone else makes, markets and/or sells the product instead. Putting in place foreign licensing agreements is often far less expensive than seeking to exploit different IP applications in different geographical territories.
Collaborative working: foreign and UK businesses may want to work together to develop and sell new products, reducing the cost of design and development, or of manufacturing and marketing, and sharing their skills and knowledge. In this way, businesses can jointly get a product to market in the UK in the quickest and most cost-effective way possible.
The careful management and licensing of intellectual property can be both vital, and beneficial, to all those involved in the product chain. This includes the success of those that either invent or create a product, the designers that configure or refine a product’s appearance, and the producers of packaging and marketing literature — to name but a few.
What should a foreign licensing agreement include?
There’s no standard format for a foreign licensing agreement, where the terms and conditions on which intellectual property is licensed can be very varied. This means that the scope of the permission granted under the licence is open to negotiation between the parties, with the outcome of those negotiations dependent on the relative bargaining power of each side.
As your intellectual property rights can be very valuable, the permission you grant to licensees and what they’re allowed to use your IP for should be made very clear. The licence agreement should always be set out in writing, making provision as to how the licensee can use your intellectual property and to what end. In this way, you can ensure that licensees are not permitted to use your IP rights in a way that might damage your reputation or lessen the value of your property, for example, if you’re licensing a trademark, you’ll need to carefully think about whether the quality of your brand will be adversely affected by the goods it’s applied to.
Subject to the way in which you’re looking to access or expand into the UK market, you may need to licence more than one sort of IP. For example, if you licence a right to sell software that you’ve designed, it may be protected by both copyright and database rights. It may also be afforded the protection of a patent, as well as selling under a distinctive brand name or logo.
In addition to the different rights and restrictions applicable to each type of intellectual asset, the licensing agreement may also have to deal with the issue of who owns any new IP rights created, for example, where the licensee integrates your product into something new.
A checklist of the most common issues to be considered before entering into any foreign licensing agreement should include:
- The type of IP you’re licensing, for example, single or multiple types
- The parties that can use your IP, for example, an individual or an entire organisation
- The ways in which your IP can be used, for example, exclusive, sole or non-exclusive use, with the respective rights and restrictions imposed
- The duration of the licence, for example, for a fixed period or the full life of the IP
- The termination of the licence, for example, the circumstances that could end the agreement
- The governing legal jurisdiction and disputes, for example, which country’s laws will apply in the event of a dispute, and the mechanism(s) to be used to resolve any dispute
- The extent of any warranties and liability, for example, clauses either limiting or excluding the licensor’s commercial risk
- The payment for the licence, for example, how the licence is going to earn you a return.
How should the cost of a licensing agreement be decided?
The licensing agreement will need to set out how much and in what way you’ll be paid, such as a licence fee and/or ongoing royalties. Price negotiations can be a tricky aspect of finalising a foreign licensing agreement, but your financial return and any other commercial benefit must be carefully considered, as once the agreement has been signed you’ll be contractually bound for the length of its’ term. As the licensor, you should also think about whether the licensee will need to be supported and, if so, what you’ll charge for that.
Your approach to pricing should be based on a sound understanding of the potential benefits licensing could bring to your business and to the other party or parties. If you understand the market for the IP, and are able to assess both your own objectives and those of any licensee(s), you’ll be in a strong position to negotiate the best price for the type of licence granted.
The value of your intellectual property will inevitably be affected by the type of licence you grant, and any restrictions you impose on its’ use by the licensee. For example, a licensee may be prepared to pay more for an exclusive licence, where neither you nor any other business can use the IP, than either a sole licence for which they’re the only licensee, but you can continue to use your own rights, or a non-exclusive licence, where you can exploit the IP yourself ‘and’ grant licences to other licensees.
When should non-disclosure agreements be used?
Before entering into negotiations for a foreign licensing agreement, it’s important to keep your ideas confidential. However, at the stage that your creation needs to be discussed, you have the option of entering into a non-disclosure agreement (NDA). In this way, you can keep your IP secure, provided, of course, that you enter into an NDA prior to disclosing any key information.
This is especially important where the intellectual property in question is a patentable invention. In this case, early disclosure may in fact prevent the invention from being successfully patented. A non-disclosure agreement will also be crucial where the only means of protecting your IP is by keeping it confidential, for example, as with trade secrets.
An NDA, once signed, will bind the signatories to secrecy about any confidential information they find out about, right from the outset. Standard form agreements can be downloaded from the Internet, including from the Intellectual Property Office (IPO) website. The IPO is the official body responsible for dealing with IP rights in the UK. However, the IPO recommends that any NDA is checked over or adapted to your particular circumstances by a specialist.
How can you protect your intellectual property in the UK?
Before accessing any foreign market, including the UK market, you must ensure that your IP is adequately protected. The IPO website contains extensive information on UK law and practice. It also provides a free IP Health Check online tool which, having answered a number of questions, will provide you with a tailored confidential report. However, if you’re looking to register a design, trademark or patent in the UK, expert advice should always be sought.
Further, if you’re looking to license your rights to a UK-based licensee, the IPO strongly recommends that you take professional advice from an IP specialist before you begin any negotiating process. As a licence is such technical and important document, this will form the foundation of any commercial arrangement moving forward. By ensuring that any foreign licensing agreement is well-drafted — and well-suited to the respective needs of each party — this will help to protect the value in your IP and minimise any potential disputes.
How can you resolve any IP disputes in the UK?
If someone tries to steal, copy, reproduce or sell your intellectual property without your permission, this may amount to an infringement of your IP rights. Equally, if a licensee breaches the terms of a licensing agreement, this is also a potential infringement of your rights, plus breach of contract, for which you can seek injunctive relief or sue for damages.
However, litigation is generally not the most cost-effective way of dealing with IP disputes, where legal advice should always be sought on enforcing your rights, including the use of alternative dispute resolution (ADR), such as mediation. Your licensing agreement may make provision stating which country’s law applies and to which courts any dispute may be taken, or whether some form of ADR must be used — illustrating yet another valid reason why foreign licensing agreements should always be left to the experts.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services - a Marketing & Content Agency for the Professional Services Sector.
