License your IP to others

Licensing lets another business use your intellectual property (IP) in return for payment while you keep ownership. It can bring in income from markets you cannot reach yourself, such as other countries or product areas, without the cost of manufacturing or distributing. You can license a patent, a registered or unregistered design, a trade mark, copyright material such as software or artwork, and confidential know-how.

Franchising is a form of licensing: a franchisor licenses its brand, systems and know-how to franchisees under a detailed franchise agreement.

Before you license

Licence or sell

If you want to keep the IP and receive ongoing income, license it. If you would rather have a single payment and step away, you can sell (assign) it. You can also combine the two, for example by selling the rights in one country and licensing them in another.

Agree the terms in writing

Get a written licence agreement drafted or checked by a solicitor or IP attorney. As well as the key terms, agree:

• how you will check the licensee's sales and royalty payments, and your right to audit their records
• quality standards and your right to approve products that use your trade mark, so the brand is not damaged
• who owns any improvements the licensee makes
• who will deal with infringers, and who pays
• what happens to stock and to the IP when the licence ends

If you are willing to license a patent to anyone who asks, you can have it endorsed 'licence of right' on the patents register. Anyone can then take a licence on terms you agree, or that the IPO settles if you cannot agree, and your patent renewal fees are halved.

For software and other copyright material, set out whether the licensee can modify, sub-license or distribute it, and on what platforms.

After you sign

Register an exclusive licence of a patent, or any licence of a registered trade mark, with the Intellectual Property Office (IPO) promptly after signing (see why registration matters above). Diary the renewal dates for your registered rights: if a patent, design or trade mark lapses, the licence may be worthless and the licensee may stop paying.

Tax on licensing income

Royalties and licence fees are taxable income of your business. If your company earns royalties from a granted patent, it may be able to pay a lower rate of Corporation Tax on those profits through Patent Box.

Licensing abroad

Your UK rights do not protect you in other countries, so register your IP in each country where the licensee will operate before you license it there. Royalties paid from abroad may have tax deducted by the other country, which you may be able to offset under a double taxation agreement.

Work you create for a client

If you are self-employed and create work for a client, such as a design, photograph or text, you normally own the copyright unless you agree otherwise.

Decide whether the client is to receive an assignment or a licence. Under a licence you keep ownership and can usually reuse the work or license it to others, if the contract allows.

If you grant a licence, set out what the client can use the work for, in which countries, in which media and for how long. Your fee should reflect the rights you grant. A wider licence or an assignment is worth more than a narrow one.

Agree these commercial terms in the contract as well:

• the scope of the work, and how many rounds of revisions the fee includes
• what the client pays if they cancel part-way through, often called a kill fee
• the amount, the payment dates and any deposit