Bookcase where intellectual licenses could be in the booksMany new business owners need to understand what intellectual property is for their business. It is common when I meet with clients who are getting ready to start their first business that they don't have a real understanding of how intellectual property works. They've probably run into intellectual property for years, usually at another business they work for, but until they've owned a business, they aren't really sure how it works for them and its importance to a business.

If you're involved in a lawsuit, it's especially important to make sure you are protecting your business's intellectual property. These are often what we call "Trade Secrets" and include things like customer lists, formulas, manufacturing processes, marketing strategies, research data, and computer code or software. Whether someone has the right to use your intellectual property depends upon whether you have given them a license to use it, and whether that license is "Exclusive" or "Non-Exclusive" in nature. Understanding the difference between the two types of licenses can help you make better decisions when it comes to protecting and leveraging your own intellectual property.

Exclusive Licenses

An exclusive license grants the licensee the sole right to use, manufacture, and sell a product or service. The licensor, or the person or entity that owns the intellectual property, cannot grant the same rights to anyone else. And the exclusive licensee has the right to take legal action against anyone who infringes on their exclusive rights.

For example, imagine that a company, Company A, has developed a revolutionary new type of solar panel. They decide to patent their invention and then grant an exclusive license to Company B to manufacture and sell the solar panels. This means that Company B is the only company that can produce and sell solar panels. No other company can do so without Company B's permission. Additionally, if another company tries to manufacture and sell a similar product, Company B has the right to sue them for patent infringement.

Non-Exclusive Licenses

On the other hand, a non-exclusive license grants the licensee the right to use the licensed property but allows the licensor to grant the same rights to multiple licensees. For example, a software company could grant a non-exclusive license to multiple companies to use their copyrighted software. In this case, multiple companies can use the software, but none of them have the right to take legal action against potential infringers. Moreover, they do not have the same level of control over the use of the licensed property as an exclusive licensee.

Comparing Exclusive to Non-Exclusive Licenses

One key difference between the two types of licenses is the level of control they give the licensee over the use of the licensed property. An exclusive license gives the holder a greater degree of control, while a non-exclusive license is more permissive and allows for multiple parties to use the property.

It is also worth noting that a license agreement can include various terms and conditions. Such terms and conditions will clarify the scope of use, remuneration or royalties that may apply, and the duration of the agreement. And it's essential to review and understand these terms and conditions to fully understand the scope of your rights.

Understanding the difference between exclusive and non-exclusive licenses is important when it comes to protecting and leveraging your intellectual property. Exclusive licenses give you a higher degree of control over the use of your property, while non-exclusive licenses are more permissive and allow others to use it. Be sure to carefully review any license agreement you are considering and understand the specific terms and conditions that apply.

Do I Need a Small Business Attorney?

If you are getting your business started or are already up and running and have some questions about licensing your intellectual property, it's important that you talk to a business attorney. Let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you and your business.

Andrew Ayers
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I work with business and estate planning clients to craft legal solutions to protect their legacies.
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