Want to learn more about drafting, negotiating, and understanding intellectual property and technology contracts and have 10 minutes to spare? Grab your morning coffee or afternoon tea and dig into our Tech Contract Quick Bytes – small servings of technical contract insights expertly prepared by our seasoned attorneys. This month, we're dishing up points to keep in mind when you're negotiating an IP license agreement.
The owner of a valuable intellectual property asset may use a license agreement to generate revenue from or otherwise exploit the asset while memorializing the license relationship. The owner of a copyright-, trademark-, patent-, or trade secret-asset holds exclusive rights regarding how that asset may be used. The terms of the intellectual property (IP) license agreement, then, will grant the grant recipient, or licensee, permission to use the asset under specific conditions.
The owner of the licensed IP asset should consider the scope of the license, the purpose of the license, how long the license will be in effect, and what would trigger termination of the license. Conversely, the licensee will also have its own wants and needs relating to use or exploitation that must be considered in negotiation. Common considerations for both parties include:
- License Term and Agreement Duration: The parties should consider whether the life of the licensed IP asset will align with the license agreement term. For example, the term of the license agreement could extend beyond the licensed IP asset's inherent "expiration date," which would be governed by federal law.
- Exclusivity: An exclusive license grants the rights of the license only to the licensee, at the exclusion of all other parties (including the licensor). Since an exclusive license grant can function as a near-conveyance of the IP asset (as opposed to simply a right to use), the licensor should consider whether an exclusive license grant is in the best interest of its business.
- Use Limits: The licensor may impose restrictions on the licensee as to how the IP asset may be used, such as limiting the field or territories of use.
- Derivative Works and Improvements: While the licensor may permit the licensee to create derivative works of and other modifications to the IP asset, the licensor may consider whether granting such rights to the licensee—thus surrendering some control of the IP asset—is in its best interests.
- Indemnification: Typically, the licensor will assume a duty to defend the licensee if the licensee is sued by a third party for IP infringement. The licensor would then consider the extent of liability it is willing to take on in the event of such a suit or of other claims.
- Quality Control (Trademarks): To prevent unintentional abandonment of a trademark, a trademark licensor may periodically inspect the licensee's use (e.g., such as review of marketing or facilities) to ensure that the licensee is complying with the license terms. The parties can negotiate the confines of this inspection.
- Assignment: The agreement may detail the conditions under which the license may be assigned to a third party, and whether consent to that assignment is required.
- Confidentiality: Confidentiality provisions are intended to describe the types of information that the parties must keep confidential, and the measures the parties must take to ensure that confidentiality. Each party may consider, then, what information it considers deserving of special treatment under this provision.
- Termination and Opportunity to Cure: The agreement will typically describe a formal termination procedure if one party believes that the other has breached the license terms, such as providing the breaching party the opportunity to cure the breach or permitting the nonbreaching party to immediately terminate the agreement.
- Fee Payments: The parties may consider whether the license will require fixed or periodic payments, or a royalty payment based on net sales, gross revenue, or another sum.
Careful consideration and drafting of the above provisions, and others, will help ensure that both parties are making informed decisions when negotiating the IP license agreement, and that the terms of the agreement are in alignment with both parties' business, creative, and financial interests.
If you or your company would like to talk about intellectual property license agreements, please contact A.J. Zottola or Channing D. Gatewood. And click here to learn more about Venable's IP Tech services.
Special thanks to Lauren Hartnett and Sydney West for their assistance with this article.