If your startup or video game studio’s business involves IP licensing (it likely does), it’s important to understand common IP license terms. Proceeding with an IP license without fully understanding key license terms can have a disastrous impact on your company’s future.
Let’s start with the obvious:
A. Licensor. The person/company granting the license. If you own the IP and are licensing it to another, you are the licensor.
B. Licensee. The person purchasing the license.
Now onto an overview of (some) important terms:
- Perpetual. This is the most important term in any license. A perpetual license is one that continues in perpetuity and will only end if the licensee breaches the license terms (rare). If you see the word perpetual, assume that the license lasts “forever”. This works in some cases but if you actually intended to license the IP for a fixed term, perpetual is the wrong word to use.
- Term. If the license is not perpetual it has a fixed term (typically a number of years), which you must specify. Once the term ends, the license ends .
- Exclusive vs Non-Exclusive. An exclusive license is one that only the licensee may use. For example, if you exclusively license your video game to a publisher, you cannot publish it yourself. Conversely, non-exclusive licenses permit additional licenses. You can limit exclusive licenses by, for example, imposing platform or geographic restrictions: exclusive license for distribution only on the Apple iOS store in Germany. If you still plan on using the software yourself, internally, be sure to retain rights to your own software when granting an exclusive license!
- Worldwide/territory/other scope. Specify the scope of the license, such as whether it applies only to a particular geographic region, technology platform or type of end user.
- Sublicensable. A sublicensable license means that the licensee can grant licenses to others.
- Assignable. An assignable license can be transferred to another, removing the original licensee from the license. Typically, licenses are assignable only upon mutual agreement, an acquisition or bankruptcy.
- Derivative works. By permitting the creation of derivative works you permit the licensee to modify and create new versions of the licensed IP. The license to make derivative works can be limited (for example, to ensure compatibility with changes in operating system versions) or broad. It is usually the case that the license prohibits the creation of derivative works.
When reviewing an IP license agreement, I often recommend starting with a review of the license terms and to watch for the above terminology. Each term can alter the scope of the license and you need to ensure that the license terms are consistent with the terms you previously agreed to.