When granting or receiving a licence under intellectual property rights, the parties need to consider at the earliest stage the degree of exclusivity that will be granted.
An Exclusive Licence means that no person or company other than the named licensee can exploit the relevant intellectual property rights. Importantly, the licensor is also excluded from exploiting the intellectual property rights. If the licensor wishes to continue to conduct any activity covered by the intellectual property (for example, a university licensor may wish to continue its research), or if the licensor has previously granted any rights in relation to the intellectual property, the exclusive licence will need to expressly state that it is exclusive subject to those carve-outs.
A Non-Exclusive Licence grants to the licensee the right to use the intellectual property, but means that the licensor remains free to exploit the same intellectual property and to allow any number of other licensees to also exploit the same intellectual property.
A licence can also take a middle-ground between exclusive and non-exclusive. Such a licence is sometimes known as a "co-exclusive" licence and is one in which the licensor grants a licence to more than one licensee, but agrees that it will only grant licences to a limited group of other licensees. The group of licensees may be identified by name, description (a licence will only be granted to licensees who meet certain criteria), or simply by number (a limited number of licenses will be granted by the licensor).
A far less commonly used form of licence is a Sole Licence. This is typically understood to mean that the licence is exclusive, except that the licensor also reserves full rights to exploit the intellectual property itself. The licensor does not have the right to grant any other sub-licences. Whilst this is the typically understood meaning, if this is the intention of the parties, it would be preferable for them to explicitly state in the agreement the extent of the rights of each of the licensor and the licensee.
On occasion, and particularly when working with US entities, a licence may be expressed as "sole and exclusive". Given that these two terms do not necessarily mean the same thing, it is preferable to avoid expressing a licence in this way. If one party insists on expressing the licence in this way it would be preferable for the agreement to explicitly state what is intended by the term.
Whether a licence is exclusive or non-exclusive has an impact on several other provisions of the licence, for example:
- where the licence is non-exclusive, it is likely that the licensor will prohibit sub-licensing. The licensor would then be the only party able to grant another non-exclusive licence to another party seeking the same rights;
- the diligence obligations are likely to be more onerous in an exclusive licence than in a non-exclusive licence; and
- an exclusive licensee is likely to have more rights regarding the prosecution, defence and enforcement of the intellectual property rights than a non-exclusive license. In the UK, an exclusive licensee of a patent has an automatic right to enforce the patent unless the contract specifically provides otherwise.
Where a licence is stated to be "exclusive", but is limited to a particular territory or field of use, the parties should carefully consider the extent to which the licensee is permitted to prosecute, defend and enforce the intellectual property rights. Although the licence is stated to be "exclusive", other licences under the same intellectual property rights could be granted in other territories and/or fields. Such other licensees may want to be involved in the prosecution, defence and enforcement of the intellectual property rights as such activities are likely to impact on the value of their licence. In this sense, a territory or field limited licence is not equivalent to a fully exclusive licence.