Licensing

 

 

Licensing is a form of strategic alliance, which involves the deal of an agreement within a right to use certain proprietary knowledge, patents, process or know-how in a definite means. The intellectual property may be registered publicly, for example in the form of a patent or trademark, as a means of establishing ownership rights or, it may be retained within as know-how, it is commonly based on operational experience.

Licensing purposes may include commercial and administrative knowledge, as well as technical knowledge. The licensing agreement is a legal contract establishing what is to be transferred from licensor to licensee including conditions of use.

A license commonly has several component parts, including protections supposed vital either to the licensor or the licensee.

 

License
From Wikipedia, the free encyclopedia

A license or licence in the sphere of Intellectual Property Rights (IPR) is a document, contract or agreement giving permission or the 'right' to a legally-definable entity to do something (such as manufacture a product or to use a service), or to apply something (such as a trademark), with the objective of achieving commercial gain.

Typically, the party giving the permission is referred to as the 'licensor' and the party receiving the license as the 'licensee' or 'licensee'. To be able to license a right, the licensor must have legal title or 'proprietary right' to it.

The licensor typically offers the license with specific limitations, such as the period of use, the territory of use, etc. Both the licensor and the licensee have specific obligations, which is expressed in the body of the agreement or is expressed in the law of the country or region or an international covenant, which governs the performance of the agreement.

In law, the document is the evidence of a license to be distinguished from the underlying license, which is the actual permission to an act in a way that would be otherwise unlawful.

Originally in reference to property, a license was the right of an individual to enter upon the property of another to do an act that would have otherwise been considered illegal as a trespass, such as walking in the woods, hunting game or swimming in the lake.

To be distinguished from a license coupled with an interest, which is an irrevocable license that granted some interest in land or in a chattel. Such a license could be enforced with an injunction. Licenses can be gratuitous, revocable at will (sometimes called a bare license) or a type of bailment.

 

The Patent License Agreement

 

 

 

Patent license agreements are based on two essences of law - the law of contracts, which enforces the promises of people, and the law of torts (wrongful act done willfully), which enforces the reasonable conduct of people.
The points generally applicable to license of other intellectual property rights has to be remarked that the main difference between a license and an assignment is that the former provides that the Licensor retains legal title of the property and the latter does not.

Under the law of contracts, there are responses for the breeches. The contracts itself shall provide others:

 

 

 

Definitions

Definitions make it easier to write the rest of the agreement in a form that's easier to understand. Generally to identify the licensed patents, licensed products, territory covered, and such terms as Net Sales, Improvements, etc.

Grant of License

Defining license to be exclusive or non-exclusive, grant sublicenses, rights to reserve solely to Licensor.

Payments

Minimum payments per period in currency or units, especially important for exclusive licenses. Define the royalty percentage, and its basis (usually Net Sales). Define patent expenses, if it's still pending, and the patent maintenance fees.

Records and Reports

Define reports that the Licensee has to provide to verify the base that the royalty is applied, periods (usually quarterly). Define access to Licensee's records for audit purposes, and the procedures. Define also the delay must the Licensee retain these reports after termination.

Improvements

Define the events Licensor make improvements in the invention.

Infringement

Define responsible for prosecuting infringer's of the patent. In some situations the Licensee's interest is to let the patent fail. Define when Licensee's product(s), based on Licensor patent, infringes the patents of others and to avoid taking on this responsibility.

Patent Markings

It's good practice to require the patent number should be displayed in the product.

Complementary Licensee's Obligations

Define Licensee guarantee to produce some quantity-level of product or some amount of sales, to define the use of best efforts to commercialize; to maintain some quality level; define Licensee indemnify you for product liability, defining clearly stated, and that it survives termination of the agreement.

Disclaimer of Agency

Statement that the parties are independent contractors, ie., the actions of one are not binding on the other.

Insolvency of Licensee

Define conditions as the Licensee goes out of business or becomes insolvent, or declares bankruptcy. Important to include provisions that automatically return the rights to Licensor, and don't get engaged with Licensee's weighted down assets.

Waivers and Modifications

Define statements as that occasional waiving of Licensor rights, or acceptance of late payments, does not alter your contract rights. Define statement that the contract can be modified only in writing.

No Warranties

Define statement that Licensor are providing no other warranties. Prevent warranting Licensee's freedom from infringement of patents of third parties. Prevent warranting that the patent(s) is valid. Prevent being considered a "merchant" under the Uniform Commercial Code - the UCC is stacked in favor of the buyer. Exclude any liabilities for consequential damages.

Notices

Define notices required, where and to whom are they to be sent and when do they become effective.

Transfer of Interest

Define Licensee transfer rights (typically not allowed).

Term

Define how long is the license to last, generally it's to expiration of the patent or the last expiring patent, except as provided under Termination.

Termination

Include any defaults not covered elsewhere, as what is the form of notices of default and how long has Licensee to correct defaults; liabilities to Licensee's products in process and orders in process.

Compliance with Law

Define laws legal responsibility by Licensee as Import-export or product regulations and that Licensee agrees to obey and conform to such laws and regulations.

Other Considerations

The following subjects habitually occur in patent license negotiations. They are best dealt with by separate agreements.

Know-how and technical assistance

Define Licensee may request additional services, or materials, to the patent rights license.

Trade secrets

Define trade secret rights in addition to, or in place of, the patents rights conveyed above.

Royalties

As a general rule, at least as a starting point, royalties can be expected of about 5% of net sales. This varies considerably across industries; it's certainly not 5% in the auto industry, and about 3% to 3-½% to others.
The important is to combine Licensor rights and the Licensee's resources in a way that will benefit both. The Licensee is looking at profitability. It's trying to balance its risk against its potential gain. In negotiations, it's very important to quantify this. The general feeling is that the Licensor should get about 25% of the pre-tax profitability and the Licensee about 75%. Above all, never over-price, which is the worst restriction to successful licensing.

Negotiations

The key to successful negotiation is meticulous preparation. During negotiations, the objective is an advantageous to both sides resolution.