Law

Intellectual Property
Intellectual Property Assignment and Licensing

Development Team

Role Name Affiliation

Principal Investigator Professor (Dr.) Ranbir Singh Vice Chancellor, National

Law University, Delhi
Paper Coordinator Mr. Yogesh Pai Assistant Professor of
Law, National Law
University, Delhi
Content Writer (CW) Dr. Raman Mittal Associate Professor,
Campus Law Centre,
Faculty of Law, Delhi
University
Content Reviewer (CR) Mr. Yogesh Pai Assistant Professor of
Law, National Law
University, Delhi
 Module Detail
Subject name Law

Paper name Intellectual Property

Module name/ Title Intellectual Property Assignment and Licensing

Module Id Law/IP/#27

Pre- requisites Basic knowledge about intellectual property, contractual

relationships, ownership and authorship, transfer of property
Objectives To get a fundamental understanding about how intellectual
property is alienated by way of transfer of property- primarily
through assignment and licensing
Key words Intellectual property, assignment, licensing, transfer of property,
licensing arrangement, IP licensing.

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 Structure of Module

Sub Topic
Topic

Introduction

1. Transfer of IP Rights 1.1 Assignment

1.2 Licensing

2. Difference between Assignment and

Licenses

3.1 Copyright Assignment/Licensing

3. Assignment/Licensing of different
Tools of IP 3.2 Trade Mark Assignment/Licensing

3.3 Patent Assignment/License

4. Important Clauses in a License

Contract
Summary

Self Check Exercises

Introduction

Intellectual property (IP) is not wealth in itself but only a tool or source of it. And this
reservoir of wealth is made to flow only when IP is used to produce and market goods and
services. The creator may utilize his IP himself but the creator himself is often unable to
utilize his own property or utilize it to its fullest extent. When he invites others to utilize his
property, he has to rely largely on the mechanism of licensing or assignment by entering into
contracts with others. It is undeniable that IP licensing plays a major role in today’s business
and economy. Business transactions in intellectual property are highly ubiquitous. The
contracts on which we click “I agree” while downloading computer software or using online

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 information is mostly in the form of licenses. From off-the-shelf software to complex
technology transfer arrangements, all depend on the same licensing law principles. Similarly,
creative fields such as music, film and books thrive on licensing arrangements. Virtually
every business today is confronting licensing issues on ever increasing scales. A solid base of
knowledge about licensing of IP has never been more important for companies and their
counsel. Therefore, no commercial or corporate law practice today can afford to be unfamiliar
with IP licensing principles.

Learning Outcome: Licensing of IP has become a specialized subject demanding

professional expertise. A reader of this module will learn about the basic framework of a
license and how IP rights are transferred through license and assignment. He will come
across the salient features of various kinds of transfer of different tools of IP. Finally, the
reader will get guidance of actual drafting of an IP license.

1. Transfer of IP Rights

Rights in different tools of IP like copyright, patents, trademarks, designs, and trade secrets
are tradable and can be transferred through the instrument of contract. Mobilizing the
flexibility of the instrument of contract an owner of IP could invite others to utilize his
property in different ways. One such way is ‘assignment’ wherein all rights in a property are
assigned to another person in return of some consideration. Another way is to selectively
grant certain rights and withhold others which is known as a ‘license’. The format chosen for
the transaction of IP affects and reflects the rights and obligations of the parties.

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 Tasks of IP
Lawyers

Obtaining Exploiting Protecting

Rights Rights Rights

Exploitation
Self Exploitation through Others
(Licensing)

1.1 Assignment

The term ‘assignment’ is defined as a transfer or making over to another of the whole of any
property, real or personal, in possession or in action, or of any estate or right therein.1 What
assignment is to intangible property, sale is to tangible property—in that sense they can be
analogized. IP is transmissible by assignment as personal or movable property. By assigning
his IP to another, the owner transfers his legal title to the assignee. In assignment the
ownership rights of the IP pass from seller to buyer and it is a one-time activity. An
assignment conveys full rights in the underlying IP. Usually, assignment involves
compensation in the form of a lump sum payment in one go but it might also be deferred to be
made dependant on certain factors, such as the success of the commercialization of the
transferred IP. The assignment of intellectual property permits a greater freedom to the
assignee in marketing of the products produced by the IP concerned than could be the case
with a license.

1.2 License

A license is the formal granting of permission by the owner of IP to the licensee. A license is
a promise not to sue a party for actions that would otherwise constitute infringement. Law
confers exclusive rights to the owner of IP to do various acts. An infringement occurs if any
one of these acts is done without license. A license, therefore, passes no interest but merely

1
Bostrom v. Bostrom, 60 N.D. 792, 236 N.W. 732, 734. See Henry Campbell Black, Black’s Law
Dictionary 119 (West Publishing Co., 6th Ed., 1990).

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makes lawful that which would otherwise be unlawful. Thus, a patent license is a waiver by
the patent owner of his right to exclude the licensee from making, using, selling, offering for
sale or importing the claimed invention. The extent of rights granted in a license may span
from a mere permission to use the licensed property in some limited manner (non-exclusive
license) to all but ownership of property (exclusive license). A license can also be appreciated
as a legal instrument through which the owner could invite others in the utilization of his IP.
A license is a contract that allocates rights and limitations in the use of an IP right.

2. Difference between Assignment and Licenses

Both licenses and assignments are contracts and both result in transfer of intellectual property.
However, they entail very different legal and practical consequences. They also serve very
different business purposes. Further, it may be rather difficult to state whether a particular
transaction is an assignment or license. It is, therefore, extremely important to appreciate their
precise nature and accurate import. Differentiating between them will also bring forth some of
their salient features which are as follows:

1. A license is a transfer by the owner of IP to another of rights less in degree than the
property itself. For example, any transfer of a patent right short of assignment could
be described as a license. Assignment is the transfer of the entire interest in an IP or
of an undivided portion of such entire interest. The nature of assignee’s title is
proprietary in nature while that is not the case with the licensee’s title.
2. Since the rights of a licensee are not proprietary, the license will not bind a purchaser
from the intellectual property owner acting in good faith for valuable consideration
and without notice of the license; whereas the title of an assignee, being proprietary
in nature, is good against all subsequent dealings, including a subsequent purchaser
from his assignor.
3. An assignee or his successors may deal with the assigned property as they wish
subject only to any contractual restrictions. On the other hand, a licensee, including
an exclusive one, must act within the scope of the license—otherwise he will
infringe.
4. The relationship between assignor and assignee and between licensor and licensee is
contractual. That means, technically, all parties can commit breach of license
contract. Such breach could lead to an action for breach of contract as well as for

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 violation of underlying IP. An assignee can sue the assignor for infringement of
underlying IP. However, the licensor cannot be sued for infringement by even the
exclusive licensee.
5. A failure to pay royalties on part of the licensee may lead to revocation of the license,
while a failure to pay royalties in case of an assignment cannot lead to revocation of
assignment. The assignor cannot get the property back after it has been assigned.2
6. The assignment of IP rights is usually conditional on payment of lump sum, while in
licensing this lump sum is usually replaced by periodic payments called royalties over
the productive life of the property. However, there is no hard and fast rule as to that;
so, at times, a licensor may get lump sum and an assignor may get royalties. Even if
both the licensor and the assignor are getting royalties, still there will be a difference
in their treatment under taxation laws. As a general rule, payments made for an
assignment of an IP must be capitalized by the assignee and may be taxed as capital
gains to the assignor. Royalties paid under a license, however, are deductible business
expenses of the licensee and comprise ordinary income for the licensor.

3. Assignment/Licensing of different Tools of IP

3.1 Copyright Assignment/Licensing

Copyright is a bundle of rights. A copyrighted work may be used in numerous ways. For
example, a novel may be translated, serialized, dramatized or turned into a cinematograph
film. Each of these uses of the novel or any interest therein may be licensed to different
licensees. The concept of ‘copyright licensing’ brings to one’s mind associations with
activities like book publishing, music recording and publishing, film making and distribution,
computer software and advertising. Licensing or assignment of copyright can be attempted in
respect of works that have already been created and also for works that are not yet created.
That means future works can be assigned or licensed. But in respect of future works the
license or assignment shall take effect only when the work comes in existence.3 There is no

2
See, Kevin Garnett, Gillian Davies and Gwilym Harbottle, Copinger and Skone James on Copyright
300 (Sweet and Maxwell, 2008).
3
See s. 18(1), Copyright Act, 1957.

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specific form or words prescribed in the Copyright Act for a copyright assignment or license.
However, a contract for copyright assignment or license of copyright has to be in writing.4

One important form of copyright license is ‘Copyleft’, which can be used for publishing all
kinds of copyrighted works such as texts, music, films, computer software, plays,
photographs, etc. In case of default copyright publishing all rights are reserved in favour of
the owner of copyright, whereas in copyleft licensing only some rights belonging to the
owner are reserved while others are waived off in favour of the users. The concept of copyleft
is derived from copyright and in fact copyleft is just a play on the word ‘copyright’ to
describe the practice of using copyright law to remove restrictions on distributing copies and
modified versions of a work for others and requiring that the same freedoms be preserved in
modified versions. The copyleft concept uses copyright law creatively to ensure that open
content remains ‘open’ even when it is modified and redistributed by subsequent developers.

3.2 Trade Mark Assignment/Licensing

In trade mark licensing the owner of a mark gives permission to place his mark on
manufactured goods or services belonging to someone else. The Trade Marks Act contains
elaborate provisions as to licensing of registered trade mark, while licensing of unregistered
trade marks is governed by common law. Where the license contract is registered under the
Trade Marks Act, the licensee is known as ‘registered user’, however, registration of a
licensee as a registered user is not mandatory. Trade mark licensing is based on the legal
fiction that use of a trade mark by a licensee will be a deemed ‘use’ by the trade mark owner
and inure to the owner’s sole benefit.5 Therefore, no application can be filed by anyone for
revocation of the trade mark on the grounds of non-use, if the licensee has used the trade
mark in that period. Further all goodwill generated by the licensee around the licensed trade
mark shall belong to the registered proprietor.

Quality control is a special feature of trade mark licensing which distinguishes it from other
forms of IP licensing. Quality control by the proprietor of trade mark over the use of the
licensed mark is an independent requirement both under common law and statutory law as to
trade marks. Under this requirement the licensor is required to control the quality of the

4
S. 30, 30A and 19(), Copyright Act, 1957.
5
S. 48(2), Trade Marks Act, 1999. See, Cycle Corporation of India v. Raliegh Industries, AIR 1995
Cal 73 at 77.

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products/services of the licensee. Such quality control could be achieved in the following
manners:
o By specification of formulae, standards, methods, directions, instructions, etc. to be
followed by the licensee
o By inspection of manufacturing processes, facilities, products, packagings, services,
advertising, etc. of the licensee
o By analyzing the samples of the licensee’s products
The law does not demand goods of a particular quality from a licensor, but it certainly
requires that the goods of the owner’s licensee must match with the quality of goods produced
by the owner himself.

Trade mark licensing is the basis of numerous business practices and in many of these
practices licensing of trade marks is hybridized with licensing of other tools of IP. The
business practices potentially involving a trade mark license are franchising, merchandising,
technology transfer and software licensing. Out of these, trade mark licensing can blend,
almost imperceptibly, into franchising which essentially combines trade mark license with the
provision of marketing or promotional assistance and controls over the manufacturing
methods employed by the franchisee.6

3.3 Patent Assignment/License

Licensing of a patent could obviously be done upon the issuance of the patent but it could
also be attempted during the pendency of the patent application. A contract for licensing or
assignment has to be in writing and has to be reduced to the form of an executed document
which includes all the terms and conditions governing the rights and obligations of the
parties. 7 A failure to comply with any of these conditions will render the license or
assignment invalid. Further, the document must be registered by filing an application in the
prescribed manner with the Controller of Patents. In order to ensure that the employer has the
rights to exploit the patent rights in the invention, most employers, in actual practice, require
employees to sign contracts to assign or license the future inventions to the employers.

6
See, Raman Mittal, Licensing of Intellectual Property: Law & Management 280 (Satyam Law
International, Delhi 2011).
7
See, s. 68, Patents Act, 1970.

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An important aspect of patent licensing is a ‘cross license’ wherein both parties of a
prospective license contract have patent rights which the other party wishes to acquire. It,
therefore, means mutual sharing of patents between patent owners. Depending on the patent
strategy of particular companies, entire patent portfolios containing thousands of patents may
be cross licensed. Such practice is common in computer hardware and software industries
where on account of the presence of patent thickets companies can require thousands of
patents to produce a single product. Cross licensing must be distinguished from a patent pool
which is another vehicle for providing access to patented material. Patent pools are created
when multiple patents from many patentees are packaged and then licensed to a third party.
The purpose of cross licenses is usually unblocking technology of each party so that each can
use the same without the threat of litigation. Cross licensing is necessitated because of ‘two
way blocking relationship’ of patents where it becomes impossible to work a patent without
infringing each other’s patent. Cross licensing is also used to enable enterprises to settle IP
disputes. There are no inherent difficulties in cross licensing, yet a potential problem could
arise if the effect of the cross license affects competition in a amrket.

Under a compulsory license, an individual or company seeking to use another's patent can do
so without seeking the owner’s consent, and pays the rights holder a set fee for the license
which is determined by the state. The following general purposes guide the Controller of
Patents in granting compulsory licenses:8
(a) that patented inventions are worked on a commercial scale in the territory of India
without undue delay and to the fullest extent that is reasonably practicable;
(b) that the interests of any person for the time being working or developing an
invention in the territory of India under the protection of a patent are not unfairly
prejudiced.
In March 2012, India granted a compulsory license to a generic drug manufacturer Natco
Pharma Ltd. to manufacture Sorafenib Tosylate, a cancer drug patented by Bayer.

8
S. 89, Patents Act, 1970.

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 Concentrating on One’s
Core Competence
Access to New
Markets/New Properties
Licensin
g-- A Testing New Markets/New
Strategic Technologies
Tool for
Innovati Turning Infringer into Ally
on
Utilization of IP that the
Owner doesn’t Use
Risk Management

4. Important Clauses in a License Contract

A license as a whole can be analogised with the ecology where everything relates to
everything else. If something is left or altered, strange consequences may follow. In the same
way, a particular language of a clause will have a certain effect and any alteration in it may
trigger a series of consequences. As contract clauses are not standard, exact language will
depend on the intention of the parties and the circumstances which normally are not the same
for any two licenses. Still, it is common to use sample contracts and boilerplate clauses.

Important clauses in a license are preamble, definition, grant, representation, warranty,

consideration, best efforts, confidentiality, term, termination and choice of law. The preamble
and recitals to a license identify the parties, the IP being licensed and the effective date of the
license. The main purpose of the definition section of a license contract is to define important
terms, that are used in the contract more than once, at one place in one go. For example, the
term ‘net sales’ might appear in the contract many times at different places; so, rather than
repeat the definition at all the places, it is better to define it once.

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The grant clause sets forth that the licensor is granting the licensee the right to use the IP
covered by the license contract. The rights within any IP could be infinitely divisible. It is,
therefore, imperative that the precise boundaries of the rights being licensed are well
understood and clearly defined. Failure to do so could result in business disasters leading to
grudges, spoiling of relationships and eventual disputes. The general principle is that the
licensor reserves rights by failing to transfer them. That means anything not granted remains
with the licensor.

Representations are statements as to current state of affairs or past facts which form the basis
of licensing contract between the parties. Representations have the advantage of clarifying
and confirming the parties’ understanding of particular issues. While representation pertains
to the state of affairs, present or past, a warranty has future orientation. A warranty is a
promise by one party that certain statements are true and shall remain true in future as well.
While representation is usually not a contractual term, warranty definitely is. By inserting
warranties in a license the parties seek to allocate the risks of the unknown.

A license contract is not a public document, but at the same time nothing prevents a party
from going public about it. However, parties to a license contract may wish to keep the
licensing details secret and obligate each other for that matter. Confidentiality obligations are
particularly important in case of licensing of trade secrets where the entire value of the IP is
dependent on it being kept a secret.

Summary

Licensing of IP is a business practice which has become essential for modern commerce and
industry. Rights in different tools of IP are tradable and can be transferred through the
instrument of contract. Two main formats for such transfer are license and assignment. While
assignment transfers the legal title of the property to the transferee, a license only transfers
some of the rights in the transferred IP. The form and content of an IP license depends on the
general law of contract and also on the specific legislation related to the IP being licensed.
While copyright licensing is mostly used in film, publishing, art and software industries,
patent licensing is used mostly in industrial activities like manufacturing and marketing of
medicines, machinery and consumable products. Trade mark licensing is the bedrock of

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activities like franchising and merchandising. License clauses are not standard because they
depend on the IP to be licensed and the situation of parties, however, parties sometimes use
boilerplate clauses.

Self-check Exercises

 What is an IP License?

 How an IP assignment is similar to sale of physical property?

 What is the difference between an IP assignment and a license?

 What are the salient features of a Copyright License?

 What is copyleft?

 What is the importance of quality control in a trade mark license?

 What is cross licensing?

 Describe the important clauses in a typical IP license?

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