What is the difference between a ‘sale’ and a ‘licence’ in the world of IP?

3 mins

Intellectual property is an intangible asset and can be a subject of transactions, where it can be bought or in-licensed, and equally, it can also be sold and out-licensed. The difference between the two is significant.

A sale (‘assignment’) would transfer ownership of the IP to the purchaser. The potentially lucrative ‘lump sum’ payment could be reinvested in alternative areas of your business, for example in the development of products and services of higher commercial potential. It should be noted that an assignment would be irrevocable, and you would no longer have rights to the IP. This may be perfectly fine if you are prepared to hand over full responsibility but may not be if you would like to retain some control over how the purchaser utilises and benefits from the IP.

A licence, on the other hand, would allow you to remain the ‘owner’ of the IP, simply providing the licensee with rights to the IP in question (in exchange for a fee) such that they do not infringe your IP. You may retain rights to work the invention or service if the licence is non-exclusive, or alternatively an exclusive licence may be granted such that only the licensee will have such rights.

Under a licence, revenue is typically generated via receipt of royalties as a percentage of the licensee’s profit in commercialising the IP. Revenue from royalties could thus be limitless, being a function of commercial success, and persist throughout the lifetime of the IP. A licence agreement may also provide for milestone payments when key stages toward commercialisation are reached (e.g. where the IP protects a new drug, success in clinical trials may yield a milestone payment).  Thus, where a product/ service has potential for long term success, the ‘licence route’ may be more lucrative that the ‘assignment (sale) route’. 

Furthermore, a licence agreement may include performance obligation clauses, leading to lapse of the agreement if the licensee does not hold up their end of the bargain. This contrasts with the situation where you have sold (assigned) the IP and the purchaser (assignee) is under no further obligation to you.

Written by: Lionel Newton