IP Rights SIG/Licenses and other ways to convey use of IP
International Game Developers Association
Licenses and other ways to convey use of IP
What is a license?
Once IP is created or acquired, the owner will often need to convey certain rights of the IP to third parties. This will further their business operations and help the company commercially exploit the IP assets. The two methods for doing so are to transfer the rights through an assignment or to license the rights. A complete transfer or assignment of the IP and all of its exclusive rights usually requires a certificate to be filed with that countries registration office. However, some countries, notably those with civil law systems, define rights that cannot be divested from the author, meaning that all transfers are essentially a license. Anything less than a full assignment is a license, which is essentially a temporary transfer of particular rights without transferring any ownership of those rights.
What does a license convey?
Licenses may be for any of the rights associated with the major forms of IP: patents, trademarks and service marks, copyrights and trade secrets. The bulk of IP assets that are licensed in the entertainment software industry consist of trademarks, copyrights and trade secrets (and in some cases publicity). Each of these forms has its own individual exclusive rights, for instance:
- For trademarks it is the exclusive right to display certain logos or phrases in association with the sale of a product.
- For copyrights, the most prolific form of IP in the world, the exclusive rights generally consist of the right to make copies or publish, to distribute, to make derivative works, to display, etc.
Each one of these particular interests can be the subject of an IP license and be transferred together or individually.
If the subject matter of an agreement is primarily the transfer of an IP right or interest, the document is best referred to as a license. However, IP rights and interests are often licensed as part of a larger contract or agreement, and may only constitute a provision of the overall agreement. A separate license agreement allows the licensing party to fully establish the boundaries for all contingent uses of the IP, rather than relegating the IP to secondary subject matter of a larger contract.
Some common examples of licenses are original equipment manufacturer (OEM) licenses, where a product may be included in the sale of computer hardware. Other examples might be a distribution or publishing agreement, a right to use trade secrets, or to create a derivative work of a previous creation. Game development studios might often find that they have to license sounds, film, audio-visual or music rights from owners in ancillary industries such as the record industry, sports industry or Hollywood. Thus, they will find that they are both purveyors and consumers of IP licenses.
Considerations when granting or accepting a license
Considerations when granting or accepting a license include:
- The scope of the grant,
- Restrictions on the grant,
- Royalty rates (often the sine quo non of the license),
- Term and
- Some form of accounting to track compensation or renewals of the grant.
While not a comprehensive list of everything that should be set by the license, focusing on these issues will help to ensure the integrity of the IP and to protect the rights of the original owner as well as the licensee.
Types of Licenses
There are many ways to convey the use of intellectual property, it is very important to understand however, that the devil is in the detail and that each legal jurisdiction may practice a unique approach to the licensing and transfer of intellectual property.
License agreements are the legal instruments that convey intellectual property rights between their owner and the entity that wants to gain access to them. Unfortunately, for commercial license agreements there is no such thing as a "standard license agreement" and understanding the components and intentions of these documents is critical. Developers that fail to take the time to evaluate and understand these documents and their scope might find themselves in court, out of business or both. License agreements are used to license rights to properties such as patents, copyrighted works, know-how, trademarks, personality rights etc. Although many legal issues need to be addressed in the agreement, the business issues should always drive the license process. Once all the business terms have been agreed upon, legal counsel should be used to draft (or review) the license agreement. Most license agreements are structured similarly. A typical agreement contains the following sections:
- Cover page and Table of contents
- Recitals - (background on licensor and licensee)
- Definition of the terms used in the agreement - (clarity is king)
- Undertakings and Representations of the Parties â€“ (based upon the agreement)
- License Grant and Restrictions - (exclusive, revocable, worldwide?)
- Payments - (schedule of payments, discounts)
- Other Obligations - (support, training and updates, audit and reporting)
- Termination - (Perpetual or defined term, termination for breach)
- Liability and Authority - (Warranties, Limitation on liability)
- Miscellaneous Provisions - (Jurisdiction, most favoured nation, severability)
In addition to the key sections in a license agreement that define what property is licensed at what cost and for what period, it is critical to pay utmost attention to details such as to what happens if the licensed property infringes any third-party rights, the licensor goes out of business or the rights granted are limited to a specific geographical region only.
While the commercial licenses for most software are designed to prevent users from sharing or changing it, there are also licenses that intend to accomplish quite the opposite. By contrast, Open Source licenses are basically "copying licenses" intended to allow licensors to share and change free software.
Open Source Licenses
The concept of "free software" is probably as old as software itself. When Universities first gained access to computers, software was created and freely passed around. Programmers were paid for programming and not for their software. Only after software was established in the business world, authors began to restrict rights to their software and charged fees. With the formation of the Free Software Foundation and its GNU project in 1984 - the idea of free software was moved back into the limelight. The Open Source Definition started life as policy document, somewhat of a bill of rights for computer users. Open Source does not just mean access to source code which is necessary for the repair or modification of a program, it also defines that an open-source program has to comply with other terms including the right to make improvements or to create derivatives. Licenses including the GNU General Public License, BSD or the MPL (to only name a few) are considered conferment to the Open Source definition. To be Open Source the distribution terms of open source software must comply with all of the following criteria:
- Free Redistribution of the software without requirement to pay fees;
- The program must include source code;
- Derived works and modifications must be allowed;
- Integrity of the Authors Source Code to allow identification of modifications;
- No discrimination against persons or groups;
- No discrimination against field of endeavour;
- Distribution of License with all terms without need for an additional license;
- License must not be specific to a product or particular product bundle;
- The license must not restrict other software that is bundled;
- The license must be technology neutral;
Freeware & Shareware
Freeware and Shareware are another form of commercially licensed software that is distributed under the terms of a license agreement and even in the absence thereof, is still protected by copyright law. It is a common misconception that Freeware or Shareware is software that is in the public domain. Freeware or shareware is usually covered by a license that allows for distribution without (advance) payment, however the author maintains ownership of their copyright rights. In contrast, a program in public domain means that the author has deliberately surrendered its copyright rights.
In contrast to licensing, the sale or the assignment of an intellectual property asset (typically) requires the holder of such assets to completely surrender all rights to the acquiring entity (even though certain jurisdictions such as Canada allow partial assignments of e.g. copyrights). The intellectual property assets sold will become subject of a bill of sale. However, in light of the fact that most transactions involving intellectual property require recording of the new owner in the respective jurisdictions, extensive "acquisition contracts" are established. In an intellectual property asset sale, a seller will typically be requested to ensure that:
- Intangible assets to be sold are accurately defined and listed
- It is the rightful owner of such assets
- No liens and encumbrances exist with respect to such assets
- The intellectual property asset does not infringe the any third party rights
- It provides indemnification in favour of the buyer in connection with the assets
- It assists the buyer in performing due diligence
- It discloses existing licensees, settlement agreements, ongoing litigation etc.