License or transfer of intellectual property rights
When you work as an entrepreneur with your design, model, brand, trade name—in other words, intellectual property—you need to ask yourself: have I arranged everything properly? What rights, or rather intellectual property rights (IP rights), are there? In addition to those mentioned, there are also database rights, copyrights, patent rights, plant breeders’ rights (‘plant patents’), and ‘chips’ (semiconductor topographies). For example, it is not always immediately clear what the difference is between a license or right of use and a transfer of such a trademark or design right.
Essentially, when you grant a license, you as the creator remain ‘the owner’ and you only grant rights of use. In the case of a transfer, the rights are permanently transferred to another party, just like when you sell a house or a car. What determines your choice?
Use of a design or copyrighted work (right of use/license)
In the case of a design and copyright, a right of use means that someone is allowed to use a design or ‘work’. This is without the holder (‘owner’) of the copyright changing. Think of designers of furniture, clothing, software, or a house: they remain the owner and can become a licensor. The licensee—the buyer or customer—only gets the right of use within the scope that you, as the owner, allow. It’s similar to renting or leasing: the rights remain with the lessor/lessee, but they can also grant them to others.
Key features of IP rights transfer:
• ownership does not remain with the creator but is transferred to another party;
• this can be for one country or as many countries as the IP right applies to;
• the acquirer sometimes wants guarantees that the registrations are valid and wants to know if there are any claims.
In the case of licenses, there are more points to consider.
Key features of licensing an IP right are:
• use is only for the agreed scope; consider the duration or type of use;
• this is exclusive or non-exclusive; i.e., granted to one or more parties;
• there are two types of exclusive licenses:
o in addition to the IP right holder, there is only one licensee, who is the exclusive licensee;
o or instead of the ‘owner’ (IP rights holder), there is only one other party—the exclusive licensee—who may use the IP right.
• Non-exclusive license: multiple parties may use the same work; the creator may issue multiple licenses.
• A prohibition on ‘subletting’, also known as sublicensing, is often included.
In practice, this can be seen in, among other things:
• software (use based on license);
• images/photos for websites/brochures;
• product forms or corporate identity designs;
• music in stores/websites/advertisements.
Other points that may determine the scope of the license or right of use are:
• the duration: temporary or indefinite;
• territories: the Netherlands or the EU or worldwide;
• purpose: e.g., only sales to retailers, not to end users;
• restrictions: no modification of the product; no brand name other than the one that already existed;
• reasons for termination or dissolution: a term or if there is insufficient use or purchase/sales targets are not met.
• How to deal with infringements: legal costs, risks, and compensation.
It therefore depends on what you want to achieve and how you want to achieve it; revenue, risks, and control, but also the exclusivity, duration, and commercial value of the model or ‘work’.
Revenue from licenses (royalty model):
• royalty as a fixed price per period; e.g., 1 year;
• royalties as a fixed amount per product
• royalties as a percentage of the cost price,
• royalties as a percentage of turnover or (notional) profit;
• combination of both (advance payment plus royalties).
Note: The word ‘royalty’ means unearned income, such as that of a king;
License registration – sensible?
Intellectual property rights such as trademarks and designs are often registered, for example with the Benelux Office for Intellectual Property or its European counterpart, the EUIPO.
• The license can then be registered with the trademark or design, but this is not mandatory.
• This can prevent problems if the ‘owner’ of the trademark or design sells it to another party without stipulating that the licensees ‘transfer’ with the trademark or design sale.
• By registering the license, the licensees automatically transfer to the new trademark or design owner.
• This can go wrong if the license is not registered and the old owner does not stipulate that the new owner must also take over the series of licensees.
Transfer of IP rights
Upon transfer, the creator permanently transfers their rights. The new owner gains full control over exploitation and use, regardless of whether it concerns copyrights, trademarks, or patents. The original creator can no longer control its use; this is similar to selling a car: after the sale, the previous owner no longer has any say.
Key features of transfer:
• ownership is transferred in full;
• in principle, it is final and irreversible;
• the acquirer is the new sole ‘exclusive rights holder’.
In comparison:
• ownership: transferred to the buyer, licensed to the creator;
• duration: transfer is permanent, licenses are usually temporary or limited in use;
• reversion: a license can end, a transfer does not revert “automatically.”
Important:
• a transfer of IP rights must be recorded in writing in an agreement;
• verbal agreements are therefore not sufficient.
• This may be different for licenses, but an agreement is preferable;
• It is also important to distinguish between different types of IP rights: registered trademarks can be renewed indefinitely, but registered designs or patents cannot. Copyright does not require registration and is ‘proven’ in a different way.
Make the right decision?
Would you like to know more about the transfer of intellectual property rights? The lawyers at Fruytier Lawyers in Business have extensive experience in all aspects of intellectual property law and will proactively defend your interests. Feel free to contact one of our intellectual property lawyers without obligation.
Bert Gravendeel
Intellectual property & IT and ICT law