What is Intellectual Property?

7. Licensing

A licence is a permission granted by the owner to use certain property. This property may comprise of a trademark, patent, trade-name, copyrighted work, industrial design, and other intellectual property assets. Licensing is usually based on a contract between the owner or agent of the property, or the “licencor”, and the prospective “licencee”, who may be a manufacturer or consumer.

The licence agreement provides a formal permission to use the licencor’s property subject to certain terms and conditions, such as the purpose of the licence, a defined geographic area, term of the contract, and manner of authorized use. In exchange for granting rights under the contract to the licencee, the licencor usually obtains a financial remuneration in the form of a “royalty” payment.

Software Licencing

A software licence is a contract pursuant to which the owner of the rights to a computer program (licencor) makes a copy of that program available for use by another person (licencee). Generally, the licencor is the software company and the licencee is the customer.

The software company retains ownership of the copyright in the software as well as the copy of the software being made available in the market. The purchaser of the software only acquires the right to use the software for specific purposes and subject to the restrictions in the licence agreement.

Licensing is favoured by software companies for two main reasons. First, by restricting the use and transfer of the software, the companies can maintain a continuous stream of revenue through licensing fees. Second, licensing with prohibition of further transfers enables the software companies to bind any subsequent purchaser with the terms of the original sale contract.

Software licence agreements may be negotiated between the parties or may be in standard form. Depending on the type of software contract, it may or may not require the signature of the customer to be enforceable.

For instance, software programs for personal computers are usually sold with “shrink-wrap” licences which attach to pre-packaged software and are contained in the program manual or elsewhere in the packaging. These licences do not need to be signed by the customer because the act of opening the package is deemed to be an agreement by the customer to be bound by the terms of the licence.

Under Canadian law, an issue arises with respect to the enforceability of the shrink-wrap licences. The sale of the software is usually made between the retailer and a customer, whereas a shrink-wrap licence is between the customer and the software company. Is such a licence contract enforceable?

According to Canadian law, the licence terms must be indicated clearly on the outside of the software package, in order for the licence agreement to be enforceable. The purchaser of the pre-packaged software is not bound by any restrictions, including those imposed by the licence, unless at the moment of transfer the vendor indicated existence of restrictions on the use of the software.

It is sufficient that the purchaser is made aware of the fact that the software is subject to a licence before the purchase. It is not necessary for the customer to be made aware of all the terms of the licence agreement. The customer must be given a real opportunity to accept or reject the terms.

A “click-wrap” licence is another form of software licences that does not require the signature of the licencee. It usually accompanies software that can be downloaded from an Internet web site only after the customer agrees to be bound by the terms of the licence by clicking the “I agree” button.

Under Canadian law, a licensee is bound by all the terms of a licence contract if at the moment of acceptance, the licencee had actual knowledge of the existence of the contract. Since the click-wrap procedure only allows software to be downloaded after the licencee has seen the licensing contract, the enforceability of click-wrap licences is generally not an issue.

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