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What is a licence

A licence is a permission to use something in exchange for money or other benefit. The something is normally a piece of IP (patent, copyright, know-how) and the money normally includes any or all of up-front payments, milestone payments and royalties.

Licensing shares the risk and benefits of exploitation between two or more parties a common method for universities to exploit their IP.

Rationale for licensing

IP is a common research outcome. Universities do not always wish to or have the resources to commercialise IP to the point at which there is a marketable product. Therefore, a university will license the IP to a company with the expertise and resources to bring a new product to market. The company (the licensee) benefits because it has a new product to sell and the university (the licensor) benefits because it receives a proportion of the money that the company makes from the product. There are also non-financial reasons for licensing, including knowledge transfer for the benefit of the economy and for the improvement of people's quality of life.

Types of licence

There are two common types of licence – exclusive and non-exclusive. The two types give either exclusive or non-exclusive rights to use and exploit the IP in a given field of use in a given territory for a defined period of time. Researchers often wish to retain or license back the freedom to continue to use a technology in their research, even where the technology is licensed exclusively to a third party for commercial exploitation.

Out-licensing is when you are granting a licence to a third party to exploit your intellectual property; in-licensing is when you obtain a licence to a third party's intellectual property for your own use

Core elements of a licence

Licence agreements can contain many different sections and be either simple or very complicated. However, all licences contain core elements defining permissions, payments, parties, terms and termination.

Permissions include what is licensed (patents and applications, background intellectual property, technical know-how, future pipelines and improvements); the field (defined markets, business or technology area) and the territory (UK, Europe, World); what the licensee can use the intellectual property for (commercial or non-commercial, manufacturing or selling); rights to sub-licence or sub-contract to third parties etc.

Payments can take the form of lump sums, royalties or shares in the licensee company. Royalties are payments made as a percentage of revenue generated by sale of the product or by the exploitation of the intellectual property. Average royalty rates vary by sector and individual deals can vary enormously. The University of Reading shares the benefits of exploitation with inventors and Schools (please see the Code of Practice on Intellectual Property (PDF-98kb) for further details).

Parties to a licence are the licensee and the licensor.

Termination clauses specify how long the licence will last for and how it can be terminated, for example in the event of non-performance or if the licensee goes into liquidation.


The licensing process

Getting started

Once TTAG (The University of Reading's internal Technology Transfer Advisory Group) decides to proceed with the opportunity through licensing then steps may be undertaken to protect the intellectual property prior to commercialisation. The inventor and the Intellectual Property Management, with the approval of TTAG, will then proceed to formulate a plan for licensing the intellectual property.


The Intellectual Property Management and the researcher will produce a non-confidential summary of the marketing opportunity for the technology. This will be approved by TTAG and may be made available on the University of Reading website (Technology Opportunities), issued as a press release or circulated in other ways to potential licensees. The IPM will seek contacts to actively market the licensing opportunity. If a company is interested, they will be asked to sign an NDA, this will enable an exchange of confidential information to take place.

Evaluation period

Potential licensees will sometimes require a period of time to evaluate a new technology before agreeing terms for a licence. This time might be required for the company to perform due diligence, undertake their own market research or for their research staff to evaluate the technology. Where justified, this period may be covered by an evaluation agreement between the parties that is separate from a later licence agreement.

Finalising the licence

The IPM will lead negotiations with the potential licensee, in association with different teams in Research & Enterprise. When all parties are satisfied, the licence agreement will be signed by an authorised University signatory.

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