Should I consider an Option Agreement for my intellectual property rights?

Once you have established from a lawyer if you can protect your intellectual property rights, we can help you open talks with potential investors or parties who may want to take a license of you IP rights or buy the IP rights from you.

You would ideally want to put a formal Option Agreement in place with the interested commercial party where they pay you a fee in order to have the right to exercise an option to buy or license the IP.

What is an Option Agreement?

An Option Agreement for intellectual property (IP) rights allows a licensee to acquire ownership of the licensed IP upon the occurrence of certain events, such as the expiry of the term, the proposed sale of relevant business assets by the licensor, or the achievement of performance goals by the licensee. The price for this acquisition can be agreed upon at the time of the agreement or determined later by a formula or an agreed third-party expert.

It is important to carefully negotiate the terms of such an option, as the positions of the parties and their relationship may change significantly by the time the option is exercised. Failure to allow the option to be exercised can lead to claims for lost opportunity by the licensor.

What should the fee be for granting the option?
Option Agreements are often complex and heavily negotiated within a licence agreement. The parties must consider which terms of the licence would continue to apply, such as royalty obligations, sub-licensing restrictions, and the assignment back of IP to the original licensor if the IP is not exploited by the original licensee. To avoid concerns around unenforceability, the mechanics of the assignment and changes to the licence agreement should be agreed upon upfront.

What is an assignment of IP rights?
An assignment is the transfer of an IP right from one entity to another, so that the assignor is no longer the owner and cannot use it unless the assignee grants a licence back. Assignments are typically made in return for a lump sum payment or instalments, and they do not need consideration to be effective. However, nominal consideration is often included to ensure all necessary legal steps are taken. Once assigned, the assignor’s interest in the IP right ceases, releasing them from ongoing obligations and associated costs but also eliminating the opportunity to derive income from the rights.

Assignments can be statutory (legal) or equitable. A statutory assignment transfers legal title to the IP right to the assignee, who then has all the rights and responsibilities of ownership. If the requirements for a statutory assignment are not met, the assignment will be equitable, meaning the assignor remains the legal owner, and the assignee receives only a beneficial interest.

If you would like to discuss if an Option Agreement could help you commercialise your IP rights, please feel free to contact us.