An IP license in its simplest form is an agreement where an IP owner (the Licensor) permits another person (the Licensee) to engage in activities that, in the absence of the IP License Agreement, would infringe the Licensor’s legal rights attaching to the IP. It is a written agreement that gives rights to do something that would otherwise be an infringement of the IP rights of someone else. All parties should therefore know exactly what has been licensed, to whom and on what terms and conditions. IP licensing agreements are not always obvious. Many general agreements between entities may include IP licensing provisions, e.g.:
- Tech transfer agreements
- OEM agreements
- Supplier agreements
- Distribution agreement
- Tolling agreement
- Subcontract agreement
- Outsource agreement
- Joint venture agreements
- Advertising agreements
- Management consultancy agreements
- Employment agreements
- Litigation settlement agreements
- Open source software licenses
And it is not just IP licensing provisions. There may be of IP provisions contained therein. Regardless of what type of Agreement is involved, it is imperative that the company or organization satisfies itself with the IP terms and conditions contained there, and fully understands what it has agreed before signing such an Agreement. (by Donal O’Connell, IPEG consultancy, visit www.ipegconsultancy.com).
|Issues to consider
|Definition of IP
|In this section of the document, the term intellectual property is defined so that all parties involved have a common understanding of what it means.
The definition should be broad as possible. Avoid any definition that focuses solely on registered forms of IP like patents and trademarks.
Take care that trade secrets are not omitted and not just handled in the confidentiality section of the document.
How is know-how handled, i.e. knowledge inside people’s heads, ideas they may have, etc. which are not documented?
Try to avoid the open sharing of ideas at meetings with collaborators without then following up and documented what was discussed and shared.
|How is background IP defined?
Try to avoid undocumented IP like ‘know-how’ being included.
Make sure that the end-date is clear.
Is there a requirement for background IP to be declared?
This is common when there are a number of diverse entities involved or if the collaboration is being controlled by an entity like a Standards Body.
What is the declaration process? To whom should it be declared? How is such background IP logged and tracked? How do other entities have visibility of the background IP declared by the other entities?
Is this any independent audit or checks on such declarations?
|Ownership & usage of the background IP
|Ownership of the background IP always stays with the entity who developed that IP. That is almost always the default position.
But what about the usage of that background IP by the other entities involved in the collaboration?
Can the other parties involved use the background IP of the other parties and if so, how may they use it?
Note that the usage terms for each party do not have to be identical for everyone involved.
Any commercial terms for any such usage of background IP should ideally be handled in the commercial part of the Agreement.
|How is foreground IP defined?
Foreground IP should ideally encompass any and all IP of any type generated by anybody working on the project at any stage from the start date of the project to the finish date of the project.
Again, try to ensure that undocumented IP like know-how is not included.
Make sure the start date is clear.
|Ownership and usage of the foreground IP
|How is ownership of the foreground IP defined in the Agreement?
Avoid jointly owned IP!
There are various ways in which the ownership of foreground IP can be resolved
The usage of the foreground IP may or may not be the same for all of the parties involved.
Any commercial terms for any such usage of foreground IP should ideally be handled in the commercial part of the Agreement.
|Field of use
|To assist all parties understanding of the usage of the IP, a ‘field of use’ may be defined in the Agreement.
The ‘field of use’ may be broad or narrow
Understand the constraints – are they clear and what are the implications for the company
Constraints are usually in terms of a market or a technology
|The agreement may include some limits in terms of geographical coverage
It is important for all parties to understand any such limits and appreciate the situation if moving outside this area
Understand the constraints and limitation of geographical coverage – what is the situation outside the geographical coverage?
|Duration of the Agreement
|The Agreement usually specifies the duration of the Agreement and the end date
From an IP perspective, one should consider that the IP involved may not have the same end date. IP can expire at different times
What happens when the IP involved has a different duration to that of the Agreement? (e.g. licensed patent, and the patent expires before end of the agreement).
|Some Agreements have milestones specified
There may be specific milestones defined which the licensor and/or the licensee must achieve during the course of the Agreement
This is for example common when IP is licensed out by medical research institutes to big Pharma in order to avoid new drugs being licensed on an exclusive basis and then ‘buried’
Are there any IP implications as far as such milestones are concerned?
Milestones provide an opportunity (doesn’t have to take place if neither party requests it) to review the agreement and provisions and possibly change them
|Are there any requirements defined and agreed about the reporting of IP assets and/or IP issues by one or all the parties involved?
If so, what is actually required?
Who is responsible for this?
|In the liabilities section, are there any IP related issues to consider.
An IP liability issue might relate to the theft or misuse of third-party trade secrets.
|Indemnification is where the licensee requires the licensor to extend its IP protection to cover the licensee
It basically asks that the licensor protect the licensee in the event of disputes with a 3rd party
There may or may not be a monetary cap on the guarantee
Note that obligations might be diluted if the licensee mixes the licensed technology with its own or 3d party technology, such that the indemnity would be worthless.
Even if one is indemnified, it might require relinquishing the defense to the indemnifying party.
What indemnifications are contained within the Agreement from an IP perspective?
Ensure the company knows what it is committing to indemnify the other(s) against.
|Ideally the parties should try to resolve any IP related disputes arising from the collaboration together, using the signed Agreement as the basis.
If this is not successful, then the parties should agree to Arbitration or Mediation.
Litigation is court should be avoided if possible.
|It is important to consider how IP is to be handled at the end of the Agreement or if the Agreement is terminated early by any one party
Why has the Agreement been terminated as this was have a major bearing on the way forward?
|What IP related warranties or promises is each party making as far as IP is concerned?
Be careful about non-infringement warranties on IP. ‘As far as we know, we do not infringe on anyone else’s IP’
|What are the confidentiality terms in the Agreement?
Confidentiality is also important from an IP perspective, especially in relation to trade secrets.
|Are there any provisions in the agreement related to publicity?
This may impact IP like trademarks and copyright
|Applicable National Laws
|On jurisdiction – there are three issues:
The national laws in the area of IP vary from one jurisdiction to another
Is the party happy with the applicable National Laws from an IP perspective.
|Audits and audit rights
|Are there audit provisions in the Agreement?
If so, does the audit provision include an IP audit?
Is each party paying what it should be?
How and when is it to be checked?
Note that when royalties are structured on revenues of specific business units or divisions, it can become very dangerous when the licensee undergoes a business re-organization. Re-organisations are often performed for larger business reasons (e.g. tax) which will trump the logic behind IP logic – with potentially huge royalty impact
Who pays the audit costs? It is for example possible to agree that if audit findings prove over 5% ”under reporting”, licensee must cover the audit expense
|Are there any grant back provisions in the Agreement?
Grant back is a provision in an Agreement under which one party grants another the right to use its IP under the condition that the other party then agrees to grant the licensor a license with respect to its IP
Grant back means any improvement that we make in their IP is given back to them
Take care if one sees Grant Back provisions in agreements, to ensure that the implications are fully understood.
|The agreement should specifically allow for the fact that certain information must legally be disclosed to government, regulatory or test labs
This legal requirement takes precedent over any IP clauses related to confidentiality.
|The commercial terms in the Agreement may or may not have consider the IP involved in the collaboration between the parties
Note that every company is convinced that their own IP is highly valuable and that their collaboration partners’ IP is of lower value. Early stage IP is not as valuable as IP from established, revenue generating products or processes. Lot of early stage IP fails
Can have a very simple one off fee related to the IP, or a very complex up-front, royalty and milestone system. Or a mixture of the above
Only use milestones payments if the business/collaboration is going to go through changes over time
For high risk deals, try to work to get the fees up front. For low risk deals, use royalty system if the volume over time is going to be substantial.