A license is a contract between two parties and more specifically an intellectual property license is permission to do something with an intellectual property right such as a patent, trademark or copyright in exchange for compensation without fear of being sued for infringement.

For example, a patent license may grant a party the right to make, use, and sell an invention covered by the patent, a trademark license may grant a party the right to distribute and sell products under a registered trademark, or a copyright license may grant a party the right to copy, publicly display, and distribute works such as photographs or authored material.

A Term Sheet for a license is an outline of the discussion points of the planned license agreement between the inventor and licensee, outlining the discussion points of an eventual license agreement. Moreover, a Term Sheet is an unsigned document summarizing discussion points between the parties where the parties will begin negotiating the details of the final license agreement.

The goal is to make sure both parties agree on the major deal points of their transaction, to clarify any ambiguity over such points, and to document their confirmation of these deal points prior to drafting an initial version of a license agreement.

Possible Major Deal Points to Consider
* Purpose/Background of the agreement
* Special terms to be defined
* Identify the intellectual property being granted (patent, trademark or copyright)
* Grant (exclusive or limited/non-exclusive) rights to use intellectual property (IP)
* License fee amount
* Royalty rate and possibly a definition of Net Sales to base the royalty rate on, usually a percentage (1-5%)
* Reports (royalty & progress)
* Performance milestones with due dates
* Term – duration of the final contract
* Agreement to negotiate the final contract in good-faith
* Who is responsible for drafting the final agreement

Additional Deal Points to Consider
* Rights to further license, transfer, or assign the agreement
* Non-Disclosure clause or a separate Non-Disclosure agreement
* Termination – acts such as lack of performance with notice & time to cure
* Warranty of title (ownership of the IP) and licensee has right to license the IP
* Disclaimer of other warranties
* Who is responsible for preventing infringement by others
* Limitation of liability (cap exposure of either party)
* Indemnification, including infringement claims (who is responsible?)
* Product safety and regulatory compliance
* Insurance
* General contract clauses or customary industry terms/general contract terms (based on state law)

Types of Intellectual Property Licenses:
• Patent License
Grant rights may include rights to make, have made, use, offer to sell, sell, and import Licensed Products (products falling within the claims set forth in the patent or patent application Patent Rights)).

• Trademark License
Grant rights may include rights to use a trademark upon or in connection with the manufacture, distribution and sale of specified products, goods, and/or services along with any promotional materials.

• Copyright License
Grant rights may include rights to use, reproduce, distribute copies, prepare derivative works, perform and display publicly the work