Selling, Licensing but Protecting Registered or Copyrighted Materials
You’ve developed a great idea and have patented an amazing piece of technology which will revolutionize the industry! But, there’s one barrier you’ve yet to overcome, capitalizing on the immense value stored in the invention. Or, perhaps you’ve found yourself in the opposite scenario, a large manufacturing business with an excess of capital wishing to enter a burgeoning new market through the acquisition of a smaller company with a hot product, or, put out a new product of your own. For either party in these scenarios the goal is to facilitate the transfer of ownership or right to produce, distribute, market, etc. that piece of technology. In addition to the patented items themselves, the parties must transfer ownership of either registered marks and/or copyrighted materials.
U.S. Code 17 U.S.C. § 201(d) governs the transfer of ownership of copyrights from one party to another. While initial ownership vests with the author or authors of a work, the author may transfer ownership interest by any means of conveyance or operation of law. All exclusive rights, along with any remedies accorded to the initial copyright owner, transfer to the new owner. The transfer may take one of several forms since the owner may transfer any portion of the interest without transferring the entire work—this is usually done by way of an exclusive or non-exclusive license.
When executing a licensing agreement over copyright, first, identify the licensing objectives; the licensee’s intended use will likely govern the scope of the agreement. Once identified, the parties must ensure that all potential licensors have been made aware and are involved in the transaction—lest the deal comes close to completion only to squandered by a silent joint-owner. As the agreement is drafted, remember the following key areas: the parties—including the licensee’s subsidiaries, distributors, employees, etc. Next, define, in detail, the work under the license. Next, the total rights transferred to the licensee including any specific modifications to said rights such as a limitation on a modification to the work. Further, all the following should be considered in the negotiations process: any geographic limitation, specific mediums of the distributorship, right to assign or sublicense, license fees, right/duty to bring suit against third party infringers, and duration. This non-exhaustive list shows just how detailed said agreements can, and should, be.
Just like copyrighted works, trademarks are valuable property which may be sold, licensed or even used as collateral to secure financing. Trademarks are commonly licensed for use by other entities for varying degrees of exclusivity. For example, a trademark licensing agreement may set a territorial restriction on the licensee so that they are limited to selling the product through a specific medium or geographic area. When licensing the trademark, it is vital for the licensor to perform quality assurance checks on all manufactured products under the mark If the licensor does not exercise control over the quality of the licensee’s goods, consumers lose any hope of purchasing a predictable quality of a good or service—this is referred to as “naked licensing.” Such a failure to maintain quality on the goods may result in abandonment of the mark by the licensor.
Another important aspect of trademark licensing is the structure through which the licensor will collect payment and who among the parties bears the burden of paying the necessary taxes. Likely the parties will agree upon a minimum royalty figure, paid quarterly, with a ceiling of X% of net sales of the licensed product.
In addition to the traditional licensing arrangement, trademarks are easily transferred through the sale. According to 15 U.S.C. § 1060 registered and unregistered marks may be assigned to a new owner, however, the assignment for either must be in writing and include any goodwill associated with the mark. The transfer of goodwill may require the transfer of other tangible assets associated with the mark which the assignor may not have considered. This transfer is essential, lest the parties risk the potential abandonment of the mark. Parties should discuss all facets of the transfer and the breadth of the mark’s use in commerce. Assignment in ownership of a registered trademark should be confirmed in writing and recorded with the USPTO.
These transfers in ownership may be incredibly lucrative for all involved parties but should occur only after an extensive period of due diligence. Failure to ensure the parties agree on key, but minute points, may lead to future litigation or accidental abandonment of the mark.