Understanding Licenses: What Are They and How to Enforce Them?

What is a License?  

Intellectual Property (IP) protection is vital for businesses, inventors, and individuals seeking to safeguard their creative works. But what happens when an IP owner wants to expand their market reach but lacks the resources to do so? One effective solution is licensing. Licensing allows the owner of intellectual property to grant others the right to use their IP without transferring ownership.^[1]  This can apply to trademarks, technologies, patents, copyrights, and even real estate. 

There are various types of licenses, including exclusive, nonexclusive, perpetual, term-based, and open-source licenses. A well-structured license agreement can also help prevent potential infringement issues by clearly defining rights and obligations. By licensing their IP asset, owners can leverage external resources, expand into new markets, and generate additional revenue. Given these advantages, an IP owner should highly consider licensing as an alternative to selling or giving away their IP.

Enforcing a License:

When Parties enter into a licensing agreement, the terms and conditions should be clearly defined to ensure effective enforcement.  The agreement should specify the legal actions that can be taken in the event of a breach, outline the scope of the license, and establish how the usage of the IP will be monitored. 

For example, in the case of exclusive licenses, a licensor grants the licensee the right to use the intellectual property for a specific period, often with the restriction that the licensor will not grant similar rights to others during that time.^[2]  Exclusivity could be an important factor in limiting the scope of the licensing agreement. 

To avoid potential legal disputes, it is highly important to ensure that all the terms of the license are clearly articulated. This includes any payment obligations, restrictions, and limitations on how the IP may be used. Clear, well-defined terms can help prevent ambiguities, misunderstandings, and future legal disputes. 

Case Studies on Exclusive Licenses:

To illustrate some of the legal ramifications of ambiguities in licensing agreements, consider the following case studies related to exclusive licenses:

1. Gardner v. Nike (9^th Circuit)

In this case, Nike and Sony entered into a licensing agreement for the use of the cartoon character, MC Teach. Sony sublicensed the character to Gardner without Nike’s consent, nor was sublicensing addressed in the contract.^[3] The court ruled the Copyright Act of 1976 did not allow a licensee to transfer its rights under an exclusive license without the consent of the original licensor.^[4] The court emphasized that while copyright ownership may be transferred under Section 201(d)(1)^[5], the language limitation in Section 201(d)(2)^[6] does not extend to exclusive licensees transferring rights themselves. 

• Traicoff v. Digital Media (7^th Circuit) 

In contrast, the 7^th Circuit’s decision in Traicoff v. Digital Media involved a similar fact pattern with the plaintiff arguing that the defendant had exceeded the scope of the license by sublicensing.^[7] The court, however disagreed with the Gardner court, finding those exclusive licensees—who are considered copyright owners in their own right—are free to transfer their rights to third parties under the Copyright Act language. The court concluded the language of the Act supported the licensee’s ability to sublicense without needing the licensor’s approval. ^[8]

Further Considerations:

These two cases highlight the different interpretations of Sections 201(d)(1) and 201(d)(2) of the Copyright Act. The split case law suggests there may be a need for clearer statutory language to resolve these discrepancies. Amending the Copyright Act could provide clarification and establish a uniform approach to the rights of exclusive licensees. 

In any case, the takeaway for licensors and licensees is clear: when entering into a licensing agreement, all intentions, restrictions, and limitations should be explicitly stated in writing. This includes addressing issues such as sublicensing. Clear terms not only prevent legal disputes but also provide a roadmap for enforcing the license should any issues arise. 

Conclusion:

Licensing is a powerful tool for IP owners looking to expand their market reach and generate revenue without relinquishing ownership of their assets. To ensure that licensing agreements can be properly enforced and be deemed effective, the terms should be carefully defined. As demonstrated with the aforementioned case law, ambiguity in licensing agreements can lead to legal uncertainty. It is imperative for all parties involved to clearly outline their rights and responsibilities in the licensing contract to avoid disputes down the line.  

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^[1] Licensing of Intellectual Property §1.01

^[2] Cornell Law School; https://www.law.cornell.edu/wex/exclusive_license#:~:text=Exclusive%20license%20allows%20a%20licensor,the%20property%20with%20anyone%20else.

^[3] Gardner v. Nike, Inc. (9th Cir. 2002) 30 F.App’x 726.)

^[4] Id. 

^[5] Copyright Act of 1976 §201(d)(1)

^[6] Copyright Act of 1976 §201(d)(2)

^[7] Traicoff v. Digital Media (S.D.Ind. Mar. 9, 2006, No. 1:03-cv-1781-JDT-WTL) 2006 U.S.Dist.LEXIS 111670.)

^[8] Id.