There is a myriad of factors to consider when it comes to licensing. For instance, the licensor should first recognize that simply creating IP does not result in revenue. Before it can be monetized, successfully generated intellectual property must be properly secured and managed. Accordingly, the licensor must ensure that the IP is registered, renewed, and protected against infringers incessantly. IP that is well-protected reflects with a high market value. For efficient and maximum revenue of its IP, the licensor should be extremely clear on provisions of exclusivity, royalties, whether sub-licensing is allowed, cost of maintaining the IP portfolio, provisions about quality inspections, and so on, when entering into the agreement.
The licensee, on the other hand, should be aware of a few requirements seeing as it will be the entity responsible for paying royalties and licensing fees to the licensor. The licensee is responsible for conducting due diligence on the intellectual property involved in the agreement. The agreement’s success hinges on the IP’s upkeep and maintenance. To avoid conflicts, it is imperative to document all of the purposes for which the IP will be used. To avoid additional expenditures or who would have the right to develop the IP, the licensee should insist on a clear demarcation of cost sharing. For better drafting of the terms and conditions, it is necessary to understand and articulate what is anticipated from the agreement.
Besides the fundamental aspects listed above, there are legal requirements that further protect the Intellectual Property which is mandated by law.
Is registration of a licensing agreement mandatory?
The laws governing various types of IP include caveats mandating the registration of a license agreement. When a statute requires the registration of a licensing agreement, both the licensor and the licensee must corroborate enforcing that it is executed within the specified period.
Patents
A license agreement must be registered, according to the Patents Act of 1970, and a licensee must apply in writing to the Controller of Patents for registration of his title. The Patents Act of 1970, Section 68, explicitly states that a patent assignment is not legitimate unless it is in written and duly executed. It additionally reiterates that an assignment of a patent or a share in a patent, a mortgage, a license, or the creation of any other interest in a patent is not valid unless it is in writing and the agreement between the parties is reduced to the form of a document comprising all of the terms and conditions governing their rights and obligations and duly executed.
The terms of a patent license are thus obvious, and they can be summarized as follows:
- It must be written down.
- It must be properly executed.
- Document embodying all terms and conditions regulating the parties’ rights and duties.
The provisions for registration of assignments, transmissions, and other similar acts are set forth in Section 69 of the Patents Act of 1970.
The Patent Rules, 2003, were also issued by the government, and they include the procedural aspects of patent license agreement registration. Here mentioned is a brief overview of the rule:
The application for registration of title and interest in patents must be made in Form 16 according to Rule 90 of the Patent Rules, 2003. The following documents must be presented with Form 16:
- The document presenting evidence of a patent transfer, or
- The document affecting proprietorship, or document producing interest, and
- Two copies of the assignment or other instrument certified to be true copies by the applicant or his agent,
The Controller may also request additional confirmation of title or written consent.
The form in which the Controller shall record the details in the register is prescribed by Rule 92 of the Patent Rules, 2003.
The courts in Sergi Transformer Explosion Prevention Technologies Pvt Ltd. vs. Kumar Pratap Anil and Ors[1], entertained the issue of legality of the license or assignment agreement as evidence will be recognized only when the document has been registered with the Controller, according to Section 69(5) of the Patents Act, 1970.
The agreement will only be considered if the Controller or Court permits or directs it with grounds stated in writing.
The judgment goes on to say that if the relevant sections are read together, there is no obstacle to the licensee filing a complaint for infringement even if the licensing agreement is not registered. The admission of an unregistered agreement, on the other hand, is only at the Controller’s or the Court’s discretion. Since, the Controller’s or Court’s instructions were missing in this case, hence the Delhi
The agreement will not be considered unless it is registered, ruled by the High Court.
Trademark
The Trade Marks Act of 1999 does not require the registration of a license agreement, but it does introduce the concept of a “registered user.” Provisions have been made to allow someone other than the registered proprietor to register as a registered user for the purposes of utilising the mark in commerce. A registered user can file infringement proceedings in his or her own name under the statute.
It is recommended that the Registered User Agreement/ License Agreement be registered with the Registrar of Trade Marks, even though recording of approved usage is optional. Only registered trademarks can be used to file an application for recordal of a License Agreement/Registered User Agreement with the Trade Marks Registry, and the application must be filed within six months of the date of the license agreement. When the Registrar is convinced with the application and the required particulars, he registers the intended registered user/licensee for the goods or services with which he is satisfied. The date on which the application for registration of a registered user was made must be recorded in the register. This is when agreement becomes effective and enforceable against third parties. Within two months of the registration date, the records will be published in the Trade Marks Journal. The Registrar is also required to notify other registered users/licensees of the concerned trade mark, if any, in the prescribed manner of such licensee’s registration. The Registrar, on the applicant’s request, will take steps to ensure that information provided for the purposes of an application under this section (other than facts put in the register) is not divulged to competitors in trade.
Copyright
The License Agreement is not mandatorily required to be registered under the Copyright Act of 1957.
Design
Under the Designs Act of 2000, an application for registration of title under a license agreement must be filed with the Controller within six months of the license agreement’s execution. Unless the court orders contrarily, a license agreement for which no entry has been made in the register cannot be entered in evidence in any court as proof of title to copyright in a design or any interest therein.
Are license agreements subject to stamp duty?
Stamp duty is a tax paid to the government on a transaction, and it is charged on the instrument that records the transaction. On license agreements, stamp duty is due, and the rate of stamp duty is different in each state. Prior to executing a license agreement, it is critical to determine whether there is a merit to executing the license agreement in a specific state and obtaining reduced stamp duty rates.
Consequences of not paying stamp duty
If sufficient stamp duty has not been paid on a document, the said agreement cannot be entered in evidence for any purpose, nor can it be acted upon, registered, or authenticated, according to the Indian Stamp Act of 1899.
Considering the intellectual property licensing attract the monetizing culture, here are certain mandatory provisions required by law regarding the registration and the stamp duty applicable on the same.
By: Vinita R. Gaud, Pravin Gandhi College of Law
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[1] I.A. No.16042/2010 in CS(OS) No.1610/2010
