Introduction
IP licensing is the grant of a right to use the intellectual property, usually for a fee, royalty or other consideration. It is one of the most commercially underutilised tools available to Nigerian businesses. A trademark, established through years of investment, can generate a continuous stream of licensing revenues from franchisees, distributors or commercial partners. Software developed for internal use can be licensed to third parties in related markets. A unique proprietary method or approach distinguishing a professional services firm can be packaged and licensed into other geographies. Content developed once could generate a continuous revenue stream over its entire commercial lifespan. The primary reason Nigerian companies do not harness this value is not because the opportunity does not exist but because IP licensing is technically challenging and poorly structured licensing arrangements often create more commercial and legal problems than they solve. Nigerian IP law in this area requires strict compliance with applicable legal and regulatory requirements, and drafting errors tends to manifest themselves where their impact is most detrimental-in a commercial dispute or upon the expiry or termination of a license relationship.
In this article, we are discussing five aspects that must be addressed in any Nigerian IP licensing agreement, the most commonly encountered errors in Nigerian IP licenses, and what every company that owns valuable IP needs to know before it can licence to a third party.
- Scope
The license scope establishes precisely what a licensee is entitled to do with licensed intellectual property, and importantly what it may not do. There are two classes of risks created by under-scoping a license. Under-scoping creates an insufficient business opportunity for the licensee such that it is unable to extract the commercial value it expected. Over-scoping confers unintended rights on the licensee which could lead to exploitation of the licensed IP, adversely affecting the licensor’s interests or infringing on the licensor’s business operations and contracts. The questions every Nigerian IP license must precisely answer include: the intellectual property rights to be licensed; whether any permitted use of the IP is limited to specific uses only, or to all uses; the geographical area or territory within which a license operates; and whether any derivatives can be produced from the licensed IP, and who will be deemed to own the same. In terms of tax implications under the NTA 2025, revenue generated from Nigerian licensors’ licensing arrangements is subject to income tax rates applicable depending on company size (30% for large companies; nil for small companies with turnover below 100 million). Gains on disposal of IP assets now fall into the category of a disposal and shall be taxed as a gain to the full market value of the asset at the time of disposal rather than at a flat 10% previously applied for capital gains tax rate.
- Exclusivity
The decision whether a license shall be exclusive, non-exclusive or sole is perhaps the most critical decision and commercial consideration in IP licensing, and is very often wrongly understood. An exclusive license affords the licensee exclusive rights in respect of the licensed IP to the exclusion of everyone, including the licensor, unless stated to the contrary. In the case of a non-exclusive license, the licensee is afforded a right to use the IP but may not prevent the licensor from granting equivalent or overlapping rights to third parties. A sole license sits in the middle: the licensor agrees not to license its IP to third parties, but is entitled to use the IP in its own business. The term ‘exclusive’ is frequently used incorrectly in Nigerian IP licenses where the scope of what it relates to, the territory and duration over which it subsists, are undefined. As such, the term has no precise meaning and will be interpreted more favourably to the licensee than the licensor.
Parties should also note the competition law dimension of exclusive licensing arrangements. Under the Federal Competition and Consumer Protection Act (FCCPA), agreements that have the effect of substantially lessening competition in a relevant market may be subject to scrutiny by the Federal Competition and Consumer Protection Commission (FCCPC). Exclusive licence agreements particularly those with broad territorial scope or long durations may be characterised as anti-competitive restraints, especially in sectors where the licensor holds significant market power.
Exclusivity is also crucial in determining what sublicensing rights a licensee is entitled to under Nigerian law as a licensee does not have the right to sub-license any licensed IP without the licensor’s written consent. Should the licensor permit this, the terms and conditions of sublicensing must be outlined in the agreement, including the right for the licensor to pre-approve all sublicenses before commitment and the consequences for the main license of a failed or breach sublicensing arrangement.
