How licensing agreements can benefit companies with valuable IP

On Behalf of | Jul 18, 2024 | Business Law

The unique resources of a business help to establish its niche in the economy. Leadership within an organization may invest a large amount of time, expertise and money into the development of a functional business with unique products and a brand that consumers trust. Non-public information and creative original work can often contribute substantially to a company’s competitive edge.

The intellectual property (IP) holdings of a business include any copyrighted original works, patented concepts and trademarks. Many businesses register their most valuable IP with federal agencies to protect against infringement. Technically, even trade secrets are intellectual property, although there is no formal registration process for trade secrets.

Businesses with valuable IP often employ a variety of different strategies to protect those resources. Licensing agreements are one of the more popular tools used to guard against IP violations.

How licensing agreements work

At first glance, using a licensing agreement to prevent IP violations might seem counterintuitive. After all, signing a licensing agreement typically involves giving another business or individual access to protected intellectual property. A licensing agreement creates scenarios in which a party that does not technically own or control intellectual property has permission to use that IP. Licensing agreements typically involve royalties and other fees paid to the license holder in return for the right to use IP in certain ways.

How do licensing agreements help protect IP?

Licensing agreements create very specific rules for the use of protected IP holdings. Businesses can negotiate IP agreements with parties that want access to their IP. Doing so can be a proactive way to prevent future infringement. Denying access might lead to reverse engineering or even outright infringement.

Negotiating a licensing agreement can also be a way to resolve a dispute about the inappropriate use of protected IP. Using a licensing agreement as an alternative to strict sole control and access to concepts and creations can be a relatively effective solution for a business. If a violation of the licensing agreement occurs, penalty clauses may allow the license holder to request financial compensation or impose other consequences on the party in violation of the agreement.

Negotiating a licensing agreement is one of multiple potential solutions that can potentially address concerns about high demand or vulnerable IP holdings. Organizations that are assertive about IP protection can help maintain a competitive advantage related to their IP holdings.

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