The Complete Licensing Kit: Everything You Need to Turn Your Bright Ideas into Money-Making Licensing Agreements

The

Complete

Licensing

Kit

(+ CD-ROM)

The

Complete

Licensing

Kit

(+ CD-ROM)

Ron Idra

James L. Rogers

Attorneys at Law

Copyright ©2007 by Ron Idra and James L. Rogers Cover and internal design ©2007 by Sourcebooks, Inc.

All rights reserved. No part of this book may be reproduced in any form or by any electronic or mechanical means including information storage and retrieval systems—except in the case of brief quotations embodied in critical articles or reviews—without permission in writing from its publisher, Sourcebooks, Inc.Purchasers of the book are granted a license to use the forms contained herein for their own personal use. No claim of copyright is made in any government form reproduced herein. Portions of this book were previously published under the title Profit from Intellectual Property .

First Edition: 2007

Published by: SphinxPublishing, An Imprint of Sourcebooks, Inc.

Naperville Office

P.O. Box 4410

Naperville, Illinois 60567-4410

630-961-3900

Fax: 630-961-2168

www.sourcebooks.com

www.SphinxLegal.com

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

From a Declaration of Principles Jointly Adopted by a Committee

of the American Bar Association and a Committee of Publishers

and Associations

This product is not a substitute for legal advice.

Disclaimer required by Texas statutes.

Library of Congress Cataloging-in-Publication Data

Idra, Ron.

The complete licensing kit (+ CD-ROM) / by Ron Idra and James L. Rogers.

-- 1st ed.

p. cm.

Includes index. ISBN-13: 978-1-57248-738-3

ISBN-13: 978-1-4022-3299-2

ISBN-10: 1-4022-3299-3

1. Intellectual property--United States--Popular works. 2. License agreements--United States--Popular works. I. Rogers, James L., 1965- II.

Title.

KF2980.I368 2007

346.7304'8--dc22

2007001574

Printed and bound in the United States of America.

SB — 10 9 8 7 6 5 4 3 2

Contents

How to Use the CD-ROM

Introduction

Chapter 1: Overview of Intellectual Property

Basics of Intellectual Property

Patents: Protecting New and Unique Inventions

Copyrights: Protecting Artistic Expression

Copyright Registration

Trademarks: Indicating Business Source

Trade Secrets: Confidential Business Information

Protecting a Trade Secret

Rights of Privacy and Publicity

Legal Authority for Intellectual Property

Chapter 2: Why License?: Your Business Decisions

Should You License?

Licensing vs. Commercializing the Intellectual

Pr

operty Yourself

Licensing vs. Selling Your Intellectual Property

Licensing to Avoid or Remedy Infringement

Main Business Issues for Your License

Other Types of Non-Licensing IP Transactions

Chapter 3: Drafting the License Agreement: Main

Legal Term

s

Defining Terms

Using Schedules and Exhibits

Defining the Parties to the License

Who Else can Become a Party to the License?

Drafting the License Grant

Defining the Licensed Property

Ownership and Proprietary Rights Clauses

Exclusive or Nonexclusive

Deciding the Scope of the License

License Term and Termination

Chapter 4: Drafting the License Agreement: Payment

Pr ovisions

Pricing the License

Fixed or Lump-Sum Payment

Royalties

Additional Business Terms

Chapter 5: Drafting the License Agreement: Legal

Pr

otections .

Representations and Warranties

Indemnification

Limitation of Liability

Intellectual Property Protection

Third-Party Infringements

Confidentiality

Force Majeure

Bankruptcy

Injunction

Chapter 6: Drafting the License Agreement:

Stan

dard Terms .

Assignment of the License

Successors

Choice of Law and Jurisdiction

Alternative Dispute Resolution

Notices Between the Parties

Severability and Waiver

Entire Agreement

Modifications

Relationship Between the Parties

Headings

Counterparts

Chapter 7: Finalizing and Monitoring Your License .

Main License Terms Checklist

Finalizing Your License Checklist

Performing and Monitoring Your License

Modifying or Terminating Your License

Chapter 8: Entertainment, Character,

and

Merchandising: Copyright and

Trademark Licenses

Copyrighted Works

Trademark Licenses

Merchandising Licenses

Chapter 9: Data and Software Licenses

Types of Software and Data Licenses

Use-Only Software License

Shrink-Wrap and Click-Wrap Licenses

Produce and Sell Software License

Software-Specific Provisions

Structure of the Software License

Common Restrictions on Licensee

Limited Warranties for the Software

Software Maintenance and Service Provisions

Updates and Future Versions

Source Code Escrow

Documentation and Technical Information

Chapter 10: Licensing Technology: Patents and

Trade S ecre

ts

Licensing Patents

Using a Patent Attorney

Technology License Provisions

Technology Cross-License

Chapter 11: Permissions

Permission vs. License

Works Covered by Copyright

Artistic Work and Public Domain

Works Published in the United States Chart

Unpublished Works Chart

Copyrighted Work and Fair Use

Works Covered by Trademark

Chapter 12: Obtaining Permissions

Written Works

Photographs, Graphic Art, and Artwork

Musical Works

Film and Video

Performances and Speeches

Penalties for Copyright Infringement

Trademarks

Permission Request Terms

Cost of Permission

Glossary

Appendix A: Intellectual Property Rights

Appendix B: Licensing Appendix

C: Finding an Attorney and Alternative Dispute

Res

olution

Appendix D: Permissions

Appendix E: Business Resources

Appendix F: Sample License Agreements

Appendix G: Sample Permission Documents

Index

About the Authors

How To Use the CD-ROM

Thank you for purchasing The Complete Licensing Kit. In this book, we have worked hard to compile exactly what you need to obtain a license for your intellectual property. To make this material even more useful, we have included every document in the book on the CD-ROM in the back of the book.

You can use these forms just as you would the forms in the book. Print them out, fill them in, and use them however you need. You can also fill in the forms directly on your computer. Just identify the form you need, open it, click on the space where the information should go, and input your information. Customize each form for your particular needs. Use them over and over again.

The CD-ROM is compatible with both PC and Mac operating systems. (While it should work with either operating system, we cannot guarantee that it will work with your particular system and we cannot provide technical assistance.) To use the forms on your computer, you will need to use Microsoft Word or another word processing program that can read Word files. The CD-ROM does not contain any such program.

Insert the CD-ROM into your computer. Double-click on the icon representing the disc on your desktop or go through your hard drive to identify the drive that contains the disc and click on it.

Once opened, you will see the files contained on the CD-ROM listed as Form #: [Form Title]. Open the file you need. You may print the form to fill it out manually at this point, or you can click on the appropriate line to fill it in using your computer.

Any time you see bracketed information [ ] on the form, you can click on it and delete the bracketed information from your final form. This information is only a reference guide to assist you in filling in the forms and should be removed from your final version. Once all your information is filled in, you can print your filled-in form.

Purchasers of this book are granted a license to use the forms contained in it for their own personal use. By purchasing this book, you have also purchased a limited license to use all forms on the accompanying CD-ROM. The license limits you to personal use only and all other copyright laws must be adhered to.No claim of copyright is made in any government form reproduced in the book or on the CD-ROM. You are free to modify the forms and tailor them to your specific situation.

The author and publisher have attempted to provide the most current and up-to-date information available. However, the courts, Congress, and your state’s legislatures review, modify, and change laws on an ongoing basis, as well as create new laws from time to time. Due to the very nature of the information and the continual changes in our legal system, to be sure that you have the current and best information for your situation, you should consult a local attorney or research the current laws yourself.

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

—From a Declaration of Principles Jointly Adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations

This product is not a substitute for legal advice.

—Disclaimer required by Texas statutes

Introduction

Why licensing?

Why indeed? A license is permission given by an individual or company that owns an original name, image, invention, artistic work, or brand—otherwise known as intellectual property—to another party (individual or company) for use of that intellectual property. You can think of a license as permission given to someone without transfer of ownership. This works the same way as, for example, a rental transaction in which a landlord rents an apartment to a tenant. The tenant gets to use the property, but does not receive ownership in it (as he or she would if he or she were to purchase it).

Licensing seems like a simple enough transaction, but the truth is that licensing is the stuff that entire industries are built on. Licensing cuts across a very wide diversity of fields and industries, including entertainment, sports, publishing, fashion, digital content distribution, art and design, software and technology, and much more. As an industry, licensing has grown tremendously in the past decade. A recent estimate placed the annual U.S. retail sales of licensed merchandise alone at $110 billion. Worldwide, licensing has been estimated by some to be a $175 billion-a-year industry.

NOTE: The term licensing is used most often in business to refer solely to the entertainment, character, sports, brand name, celebrity name, and image merchandising industries. In this book, the term is used in a wider sense to include the licensing of any intellectual property in any area, including technology, software, the Internet, and so forth. Permissions—which are short, simple licensing transactions—are also covered.

Basically, any intellectual property can be licensed—the variety of licensing transactions is endless. Some of the more popular forms of everyday licensing include the following.

u Entertainment and character merchandising.

Entertainment and character merchandising is a multibillion dollar a year industry built around the licensing of film, television, or cartoon characters; celebrity and other famous names and images; designs and illustrations; and, other artistic works for placement on or association with a variety of merchandise. Such merchandise includes clothing lines, accessories (such as handbags), websites, computer software, children’s educational supplies, dolls and action figures, and much more.

u Video games.

A subgroup of entertainment licensing, video games are unique multimedia works that often incorporate a wide variety of entertainment properties: music, characters, brand names, and other artistic works.

u Music, film, publishing, and television.

The foundation of the entertainment industry is the licensing of artistic works for mass production and distribution. For example, music is licensed for performances and recordings, film is licensed and distributed to theaters, books and written works are licensed for publication through publishers, and so on.

u Corporate brand and trademark licensing.

More companies than ever are recognizing the power of licensing to extend brand awareness. Companies may also use licensing strategically, testing a market through a licensing arrangement by licensing their trademarks to another company.

u Sports licensing.

In 2004, this area alone accounted for $18 billion in sales in the United States. Sports teams, national sports leagues, and universities license rights to the names and images of their teams to maximize their revenues.

u Software.

The majority of software programs—whether off-the-shelf or customized for business use—are licensed. The licensing of software has become even more important with the development of the internet, and the ease of downloading and distributing programs and information.

u Licensing of technology.

Technology—protected by patent or trade secret—is frequently licensed in the mechanical, electrical, chemical, and biotechnical industries. Based on recent developments in patent law, companies may now also license new and original business methods.

NOTE: While it is beyond the scope of this book to discuss the specifics, details, and nuances of every type of licensing, the basics of how any license is structured, negotiated, and drafted are covered. In addition, you will learn the basics of how to obtain permission to use a copyrighted artistic work for a variety of purposes.

There is also a growing trend of people handling many of their legal issues on their own, without attorney involvement. Individuals, freelancers, entrepreneurs, solo business owners, and even some companies often try to deal with at least some legal matters themselves to avoid paying the typically high fees of legal counsel. Common, everyday legal transactions include incorporations, drafting a will, entering into a residential lease, buying real estate, entering into an employment contract, and so on.

This results in more people than ever involved with intellectual property licensing and permission transactions in everyday business. Drafting, reviewing, and negotiating these agreements takes special knowledge of licensing and an understanding of intellectual property, but it is possible to learn enough of the basics to handle many matters on your own.

This book is about how to think about, structure, and draft a license agreement, as well as how to obtain permission to use an artistic work. Reading it (or even skimming its chapters) can help you better understand the fundamentals of licensing and appreciate common ways intellectual property is used in business to make money. You will learn enough to navigate the fundamentals of drafting, reviewing, and negotiating many license and permission agreements yourself.

Whether you are a business owner, a solo inventor or artist, or an employee or freelancer in a creative field who wants to better understand intellectual property, this book can be of benefit. While this book is an introduction and guide designed to help the reader understand the basics, there are times when expert legal advice is needed. There are attorneys who specialize in handling intellectual property issues, and they are your best resource for complex or complicated matters. In the event you decide to seek legal advice for issues related to intellectual property or licensing, you will be much better informed as a result of reading this book. Being informed means being able to ask better questions and being better able to understand the answers.

Guide to Using This Book

Who needs this book? The short answer is anyone involved with the licensing of intellectual property. Basically, anyone using, selling, transferring, giving, or obtaining permission to use intellectual property may benefit from reading this book. Additionally, anyone working in a creative or inventive field—artists, writers, photographers, engineers, inventors, and so on—whether employees, independent contractors, or freelancers—will benefit from a better understanding of intellectual property rights and the process of licensing and permission.

This book is unique in that it addresses licensing from the perspective of both licensor and licensee. Every type of license and intellectual property agreement—as well as each provision within these agreements—will be discussed from this dual perspective. Thus, an owner of intellectual property (the patentee, copyright, or trademark owner) and the person seeking to use intellectual property will both benefit from this material.

The following is a quick guide to the book’s contents, broken down by topic, interest, and type of transaction.

u You want to learn licensing basics—

Turn to Chapter 2 for a discussion on the business issues in licensing, and Chapters 3 through 7 for how to draft the specific provisions of a license agreement.

u You want to better understand intellectual

prop

erty—

Read Chapter 1 for a more in-depth explanation of patents, copyrights, trademarks, and trade secrets, as well as rights of privacy and publicity.

u You are involved in entertainment, character,

bran

d name or other merchandising—

Whether you are the licensor or licensee, if you are involved in any aspect of this merchandising or similar type of licensing, you should read Chapters 2 through 6 for the basics, and Chapter 8 for additional information. Also see forms 1 through 5 in Appendix F for sample license agreements in this area.

u You need to use a person’s name, image, or

ph

otograph—

Read about the rights of publicity and privacy at the end of Chapter 1, and turn to form 8—a general release agreement—in Appendix F.

u You are licensing a copyrighted artistic work—

Whether you are licensor or licensee, turn to Chapters 2 through 6 for the basics, and Chapter 8 for additional information. Forms 1 through 3 in Appendix F also provide important samples you can use.

u You are using or licensing software or data—

Whether you are developing or selling software; need to use another party’s software; or are licensing financial, scientific, marketing, or other data, read Chapter 9 for software and data-specific licensing. See form 10 for data licensing, and forms 13 and 14 for software licensing in Appendix F.

u You want to license patented technology—

Read Chapter 10 for a discussion of the specifics of licensing technology. See forms 11 and 12 for sample licenses in this general area.

u You need permission to use a copyrighted

artistic

work—

Turn to Chapters 11 and 12, which cover the process of obtaining permission to use a copyrighted artistic work. See also Appendix G, which has sample permission forms you can use.

u You need a quick overview or reminder of the

var

ious license provisions—

Turn to Chapter 7 for a quick checklist of all the provisions that go into a license agreement and a shorthand way of checking whether your license agreement contains all appropriate provisions.

See Appendix F for a wide variety of sample license agreements that you can use or adapt to your specific license transaction or general business needs. Likewise, Appendix G contains a variety of permission forms for a copyrighted work.

Finally, even if you are not currently using, licensing, or otherwise dealing with intellectual property rights, you may still benefit from a better understanding of this very important field. There are numerous areas of business where knowledge of intellectual property issues and intellectual property licensing is helpful.

We would like to conclude this introduction with a short proviso, which will be repeated frequently in the chapters that follow. This book covers diverse (and hopefully fascinating) situations involving intellectual property licensing. It often does so by simplifying many of the numerous details that might arise in real-life scenarios. Specific decisions involving your intellectual property and license may be affected by or even dependent on other areas of law—such as employment law, trusts and estates, and so on—that are beyond the scope of this book. Therefore, depending on your specific legal situation, you may need to consult with an intellectual property attorney. Appendix C lists resources for such a purpose.

Chapter 1:

Overview of Intellectual

Property

In order to understand licenses and intellectual property agreements, it helps to understand the fundamentals. Specifically, it helps to know what intellectual property actually is. To illustrate, in a license, an individual or company (the licensor) who owns or controls any of a variety of types of intellectual property rights gives someone else (the licensee) permission to use an intellectual property right. The licensor should understand how intellectual property functions in order to determine how to license effectively, as well as whether or not to license in the first place. Likewise, the licensee must also comprehend the nature of the rights being received in order to know what he or she can and cannot do.

This chapter covers the fundamental characteristics of intellectual property. It begins with an examination of the basics of the four main types of intellectual property: patents, copyrights, trade secrets, and trademarks. Since each of these rights has its own identity, functions in unique ways, and is protected by different means, you must examine the individual features of each right separately. In addition to the main intellectual property rights, a brief examination of examine the rights of privacy and publicity, which form the basis of some types of licenses, must be had.

The chapter concludes with a brief section on the legal authority in the United States for all intellectual property rights. The discussion of