Licence agreement or assignment of rights: what a rights holder should choose

A rights holder often comes with the same question: should they sign a licence agreement or transfer the rights straight away under an assignment agreement. At first glance, both documents solve a similar task — they give another person or company the opportunity to use the object you are responsible for. But their legal consequences differ, and a mistake here is costly: you can lose the rights forever or, conversely, bind the counterparty with terms that do not work.

The article examines how a licence agreement differs from an assignment, in which cases each option is more advantageous, and which terms must be included in the text. It separately covers the types of licences, remuneration, registration and the procedure for termination — the things most often overlooked in a first transaction.

Licence agreement and assignment of rights: what is the difference for the rights holder

Copyright in Kazakhstan is regulated by the Law of the Republic of Kazakhstan on Copyright and Related Rights. It distinguishes two contractual structures, and the choice between them determines what the rights holder can do with the object afterwards. A licence agreement keeps the exclusive right with the author or other rights holder and merely permits the user to use the object within the agreed limits. An agreement on the transfer of exclusive rights (in the Civil Code of the Republic of Kazakhstan — assignment of an exclusive right) transfers the right to the acquirer, and the former rights holder loses it to the extent transferred.

The difference between a licence and an assignment shows primarily in the scope of the opportunities transferred. A licence may be exclusive or simple, with a territory, term and ways of use; in an assignment of exclusive rights, the agreement also states the ways of use, term and territory, but within those limits the right passes to the acquirer. Therefore the author loses the ability to use the work themselves in the transferred ways, unless the agreement preserves otherwise.

When a licence agreement is better than an assignment: selection criteria

The choice between a licence agreement and an assignment of economic rights depends on whether the right holder intends to use the object themselves. Under an author's agreement on the transfer of economic rights, those rights may be transferred as exclusive or non-exclusive. If the author intends to continue earning income from several users, assignment deprives them of that opportunity, whereas a licence preserves the rights in their hands.

Control over the scope of use also favours a licence: the agreement makes it possible to limit the territory, term and methods of use, and to prohibit certain types of modification. On assignment these levers are lost.

• Whether you intend to use the object yourself after the transaction.
• Whether control over the scope of use, territory and term needs to be preserved.
• Whether you expect income from several users.
• Whether you are prepared to lose the exclusive right irrevocably.
• Whether you need the right to prohibit use by third parties.
• Whether the object will be further developed in the future.

Property rights are transferred under an author's contract — exclusive or non-exclusive.

Types of licence agreement: simple, exclusive and non-exclusive licence

The Law of the Republic of Kazakhstan on Copyright and Related Rights and the Civil Code of the Republic of Kazakhstan allow the right to use an object to be granted under an author's (licence) agreement. The types of agreement differ in the scope of rights transferred to the licensee: this determines whether the right holder may use the object themselves and grant permissions to other persons.

Under a non-exclusive licence, the licensor may grant licences for the same object and by the same methods to an unlimited number of persons. The licensee does not become the only person able to use it. This structure is convenient for the mass distribution of software, images, texts and music.

• non-exclusive (simple) licence — use is permitted to the licensee, but the right holder may grant the same licences to others;
• exclusive licence — within the agreed scope, the right holder may not grant licences to third parties or use the object themselves, unless the agreement provides otherwise;
• the scope of rights is determined by the methods of use specified in the agreement;
• the territory and term of validity limit the licence regardless of its type;
• if the type of licence is not named in the agreement, it is deemed non-exclusive — an express statement in the text removes the uncertainty.

Comparison table: licence agreement versus assignment agreement

A comparison of a licence agreement and an assignment begins with the scope of rights transferred. Under an author's agreement on the transfer of property rights, the rights may be transferred as exclusive or non-exclusive. On assignment, the right holder loses the property rights to the work in favour of the acquirer, whereas under a licence they retain them, granting permission for use. This determines whether the author may subsequently dispose of the object and restrict third parties' access to it.

Assignment is, as a rule, irreversible: the right passes to the new owner and cannot be returned unilaterally unless the agreement expressly provides otherwise. A licence is valid within the term and territory specified in the agreement, and upon their expiry use ceases. On assignment, the number of users is determined by the new right holder, whereas under a licence it is limited by the terms of the agreement: a simple (non-exclusive) licence permits the granting of permissions to other persons, an exclusive one does not.

• On assignment, the property rights pass to the acquirer in full or in the agreed part.
• Under a non-exclusive licence, the right holder may grant licences to other users as well.
• Under an exclusive licence, the user obtains rights without the possibility of transferring them to third parties, unless otherwise agreed.
• Breach of the terms of the agreement entails liability under the legislation of the Republic of Kazakhstan and under the measures agreed in the agreement.
• The return of rights is possible only in the cases and in the manner expressly provided by the agreement or by law.

Economic rights are transferred under an author's contract on the transfer of economic rights — exclusive or non-exclusive.

Subject matter of a licence agreement: what exactly to describe

The subject matter of a licence agreement is a description of the object transferred for use and of the actions the licensee is entitled to perform. Copyright is governed by the Law of the Republic of Kazakhstan on Copyright and Related Rights, and the contract must allow its terms to be correlated with the law without further interpretation. The object is identified by its name, type (software, image, text, database), author and information on where the copy or source material is located. A general description of the object does not allow one to prove in a dispute what exactly was transferred.

The scope of rights is determined by the list of ways of use and by stating whether the licence is simple or exclusive. Ways of use: reproduction, distribution of copies, public display, alteration, making available to the public. The wording 'to use in any way' deprives the licensor of control, while not guaranteeing the licensee the required right, and courts ascertain the actual will of the parties, making the dispute unpredictable.

• 'Rights to the object' without clarification: it is unclear whether ownership of the copy is transferred or only the right of use.
• Confusion between a licence and alienation: phrases about 'transfer of all rights' contradict the nature of a licence agreement and create a dispute as to its type.
• Failure to state whether the licence is simple or exclusive: by default a licence is deemed simple, but the parties often assume the opposite.
• Territory 'at the licensee's location': tying it to a changeable address blurs the boundaries of use.
• Term 'for the duration of copyright': the parties understand such a reference point differently.
• The right to alter without describing permissible changes: opens the way to distortion of the object and claims by the author.

A right holder rarely regrets keeping the rights; far more often a dispute arises from wording that does not describe what exactly may be used and how.

Drafting a licence agreement: structure and mandatory terms

A licence agreement records the right to use an intellectual property object within specified limits. Economic rights are transferred under an author's contract — of exclusive or non-exclusive rights; the type of transfer determines the scope of the licensee's abilities and whether the rights remain with the licensor.

The structure is built around the subject matter: a specific object (work, trade mark, invention), the way of use and the territory. Without a clear subject matter, the contract risks being recognised as not concluded. Ways of use, term, territory and remuneration are terms the law requires to be stated in an author's contract; where there are gaps, the rules of law apply.

It is important to distinguish between an exclusive and a non-exclusive licence, to determine the possibility of sublicences and the reporting procedure, and to fix terms on quality, confidentiality and liability. The text must exclude double interpretation of rights and obligations.

• Subject matter: an exact description of the object and the ways it may be used.
• Type of licence: exclusive or non-exclusive.
• Territory and term.
• Remuneration and the procedure for its payment.
• The right to sublicense and reporting conditions.
• Liability of the parties and the procedure for dispute resolution.

Essential terms of a licence agreement and the consequences of their absence

The Law of the Republic of Kazakhstan "On Copyright and Related Rights" classifies a licence agreement as an agreement under which the right holder grants the user the right to use the work within established limits. The Law requires the copyright agreement to state the ways the work may be used, the term and territory, the amount of remuneration or the procedure for determining it, and the procedure and time limits for payment; the type of rights transferred — exclusive or non-exclusive — is best stated expressly.

If the subject matter is not defined or the ways of use are not named, the parties have not agreed what is used and how. The dispute comes down to whether the agreement was concluded at all. A court may find the agreement not concluded, and the user is left without a legal basis for using the work.

Onerous and gratuitous licence agreements: when each is permissible

As a general rule, a licence agreement presupposes payment of remuneration to the licensor: this is an onerous licence agreement. This structure matches the nature of granting the right to use an intellectual property object, where the licensor derives income from its use. Remuneration may be a one-off payment, periodic payments or a percentage of income, and this term is essential for this type of agreement.

The Law also permits a gratuitous licence where the parties have expressly recorded that no payment is due for use. Gratuitousness must be stated expressly in the agreement. Between commercial organisations, the gratuitous transfer of property benefits is restricted by the Civil Code of the Republic of Kazakhstan, so such a term is checked separately.

• gratuitousness must be expressly recorded in the agreement
• in the absence of a clause on payment, the agreement is deemed onerous
• the amount and procedure of remuneration are determined by agreement of the parties
• where the price cannot be determined, the rule on reasonable payment applies
• between commercial organisations, a term on gratuitousness is checked against the restrictions of the Civil Code of the Republic of Kazakhstan

Registration of a licence agreement: when it is required

Licence agreements for industrial property objects and trade marks — inventions, utility models, industrial designs, marks — are subject to registration with the authorised body in the field of intellectual property. For works protected without registration, written form is sufficient. Copyright is governed by the Law of the Republic of Kazakhstan "On Copyright and Related Rights", and rights arise by virtue of the creation of the work.

Registration makes the grant of rights publicly reliable: for the licensor it confirms the transfer of rights to a specific person and on specific terms, for the licensee it is a basis for asserting rights against third parties relying on other transactions. Without registration it is harder to prove priority, even if the agreement is signed and being performed. Registration is carried out on the application of the parties to the authorised body, the entry is made on the basis of the agreement with a check of its compliance with the law, and on amendment or termination the information is updated. A copyright agreement for a work, including a computer program, does not require registration, even if the rights have been entered in the state register.

Liability of the parties under a licence agreement

Typical breaches under a licence agreement relate to the licensee going beyond the scope of the rights: using the object in a way not named in the agreement, distribution in an unagreed territory, exceeding the print run or number of users. A breach is also the transfer of the object to third parties without the written consent of the licensor, including under a sublicence, unless such a possibility is expressly stipulated. A separate ground is non-payment of remuneration within the time limit and in the form set by the agreement.

Property rights are transferred under a copyright agreement — exclusive or non-exclusive — so the scope of the licensee's rights is limited by the terms of the agreement, and any action beyond them constitutes a breach.

• the licensor's right to suspend use of the object until the breach is remedied
• termination of the agreement for late payment of remuneration or another material breach
• the licensee's obligation to submit a report on the use of the object
• prohibition on transferring the object to third parties and on granting sublicences without written consent
• compensation for losses and payment of a penalty for exceeding the scope of the rights granted
• the right to demand cessation of use and restoration of the violated position

Termination of a licence agreement: grounds and procedure

The grounds for terminating a licence agreement are determined by its terms and the Civil Code of the Republic of Kazakhstan; copyright is governed by the Law of the Republic of Kazakhstan on Copyright and Related Rights. The agreement is terminated by agreement of the parties, at the initiative of one of them in the event of a material breach of the terms by the other party, or upon expiry of the term. A breach is deemed material if it causes the party damage that deprives it of what it expected when concluding the agreement.

Termination is formalised in writing: by agreement or by notice of withdrawal in the cases permitted by law or the agreement. In the event of a breach, the aggrieved party sends a demand for its remedy, and if this is not done, gives notice of withdrawal. The moment when the obligations terminate is determined by the date of the agreement, receipt of the notice, or the occurrence of the term set out in the agreement.

• The right to use the object reverts to the licensor, and any further use constitutes an infringement.
• The licensor's obligation to refrain from actions obstructing the use of the object comes to an end.
• The parties return the materials, documentation and other results of performance of the agreement received by them.
• Final settlements are made in respect of obligations already performed.
• The provisions on confidentiality and liability for breach remain in force, if so provided by the agreement.
• The licensee is obliged to cease using the object and to confirm this in documentary form.