What is the difference between an IP Licence and an assignment?

Intellectual property (IP) is an intangible, yet extremely valuable asset to your business.

It can include:

• logos;
• slogans;
• designs;
• inventions; or
• creative works.

When you assign your IP rights (including your copyright), you sell the rights to your IP.

You transfer ownership and you cannot use that IP again.

Nor can you impose terms and conditions on use of the IP.

This is common when you are employed (or contracted) to create a specific work for another business.

When you license IP, you retain ownership of the IP rights.

You give permission to another business to use your IP and you set the terms.

For example, you can license another business to develop the idea, to manufacture the product, and to market and sell the product or service.

Let’s look at both of these options in a little more detail.

IP Licencing

As the owner of IP, you can licence your IP out to another person or company to use.

Both you and the other party agree on the terms of this use.

This is known as a licensing agreement, and in this example, you are the licensor, and the other party is the licensee.

Check out our guide on licencing agreements and what you should include

The terms of use outlined in this agreement should be negotiated between you and the other party to secure your best interests.

These terms regulate the agreement and can include:

• restricting the licensee’s use to a particular geographical location; and
• the payment of rights in the form of royalties.

Types of licenses include:

• exclusive, where the owner of the IP grants only one licence and is not able to use the IP themselves;
• non-exclusive, where the owner of the IP can grant more than one license and is able to use the IP themselves.
• sole, where the owner of the IP can grant only one licence and is able to use the IP themselves.

Licensing advantages

There are advantages to licensing your IP compared to assigning it, including the following:

 Control

If you license your IP, you set out the terms and conditions under which it can be used.

You keep the ownership of the IP, and you can license it to other parties.

 Less initial cost

If you have a great idea, you could license it to a third-party manufacturer to create the product.

This could be considerably less expensive, and result in a higher quality product than if you were to manufacture it yourself.

You need a well-drafted manufacturing contract to protect your intellectual property.

Greater expertise

When you license to a third party, you benefit from their expertise.

For example, a third-party manufacturer should have considerable expertise in how to actually make the product.

A third-party seller may have expertise and contacts to help sell a product or service to a particular industry.

Incentives

When you license to a third party, you can build in incentives to succeed.

For example, a strong seller can have an exclusive territory, or discounted pricing from you.

What conditions can you impose?

You choose the license conditions, including:

• Payment;
• Territory restrictions;
• Sales volumes;
• Use of the IP and marketing materials;
• Record-keeping requirements and other obligations; and
• Rights or restrictions on sub-licensing.

You can find out more about licencing in our guide to licencing

IP Assignment

Unlike a licence, an IP assignment is a permanent transfer of IP.

Inherent with an IP assignment is a loss of control of the assets from the date of assignment as the new owner will usually be able to do what it likes with the IP, including transferring ownership to another party.

An assignment also means that if a new owner breach any of its obligations, this will not usually affect the new owner’s ownership of (or right to use) the IP (although it could give rise to a claim for breach of contract or a claim of repudiation).

This transfer is irrevocable and generally occurs as a sale or transfer from an owner (assignor) to the purchaser (assignee).

Check out our guide on when you should consider the assignment of IP

In contrast to an assignment, an IP licence agreement is not irrevocable and will typically contain detailed provisions as to what the licensee can and cannot do (which may include a prohibition on transferring the licence or sub-licensing to a third party).

If the licensee fails to comply with its obligations under the licence, the licensor, in many cases, has the right to terminate the licence and therefore the licensee’s right to use the particular IP will cease.

If you are looking to transfer IP ownership by way of an assignment, it must be in writing.

This is because there is a requirement that any assignment needs to be recorded with the IPOI so that the new owner of the IP is registered.

These documents can transfer present or future IP rights in exchange for a lump-sum payment.

Is Licensing or Assignment Most Suitable for Your Business?

You must consider the payment structure that your business uses before you assign or license your IP.

Licensing your IP will mean that you have a flow of royalties over an agreed period.

If you instead choose to assign your IP, you will receive a lump sum.

The most appropriate choice for your business depends on which option offers the most commercial value.

To find out how to value your IP take a look at our guide on valuing your IP