Licence of IP (right to access vs right to use)
A licence of intellectual property grants either a right to access the IP as it exists throughout the licence period, recognised over time, or a right to use the IP as it exists when granted, recognised at a point in time. IFRS 15 uses this access-or-use distinction; ASC 606 classifies the IP as functional or symbolic.
Standard references
- ASC 606606-10-55-54 to 55-65
- IFRS 15paragraphs B52–B63
- Ind AS 115paragraphs B52–B63
Worked example
Illustrative: two three-year licences signed on the same day.
- Brand and character licence for $120,000 (symbolic IP that the licensor keeps supporting): right to access, recognised over time at $40,000 a year.
- On-premise software term licence for $90,000 (functional IP whose utility the licensor does not change): right to use, recognised when the software is available and the term begins.
- A SaaS subscription where the customer cannot take possession of the software is generally a service, not a licence.
Result: $40,000 a year for the brand licence; $90,000 up front for the software licence.
Illustrative figures for explanation only, not taken from a real contract.
Common mistakes
- Treating SaaS access as a licence of IP.
- Recognising a licence renewal before the renewal period starts.
- Applying the general variable-consideration constraint to sales- or usage-based royalties instead of the royalty exception.