COMMON MISTAKES IN TECHNOLOGY LICENSING

COMMONLY MADE MISTAKES IN LICENSING AGREEMENT : 

1 COMMONLY MADE MISTAKES IN LICENSING AGREEMENT ADV. RAMAKANT SINGH Phone-9953292114 ramakantsingh@ymail.com

NOT CONDUCTING DUE DILIGENCE : 

2 NOT CONDUCTING DUE DILIGENCE FOR LICENSEE: The Licensor’s ownership of, or license rights to, the licensed intellectual property. Sufficiency and value of licensed intellectual property with respect to the licensee’s intended use. Validity and enforceability of licensed intellectual property. Potential third-party claims relating to the licensed intellectual property (including potential infringement claims resulting from licensees use thereof). The licensor’s ability to perform ongoing obligations and satisfy claims made by the licensee under the license agreement.

Contd….. : 

3 Contd….. FOR LICENSOR: Credit worthiness of licensee Licensee’s ability to exploit intellectual property The licensee’s ability to perform ongoing obligations and to satisfy claims made by the licensor under the license agreement In case of a trademark license, the potential product liability exposure that may be created by the use of licensed trademark.

IGNORING LEGAL FRAMEWORK : 

4 IGNORING LEGAL FRAMEWORK SOME EXAMPLES: Doctrine of patent misuse. Anti-trust laws. Rules and regulations pertaining to export of technology.

AMBIGUITY IN TERMINATION PROVISIONS : 

5 AMBIGUITY IN TERMINATION PROVISIONS EXAMPLES: When the license agreement characterizes itself as “perpetual” or “irrevocable” but the termination provisions states that all licenses granted under the agreement “automatically terminate” on expiration or termination of the agreement. A license grant that expressly states that the license remain in effect only during the term of license agreement coupled with a survival provision that provide for the survival of license after expiration or termination.

Contd….. : 

6 Contd….. Unclear provisions with respect to: Early terminations Duration of agreement Additional right and obligations of the parties eg., maintenance, other services to be provided.

EXPOSING SECRETS : 

7 EXPOSING SECRETS Inadequate confidentiality provisions. The agreement should expressly provide that which information is confidential and should be protected. Should provide for measures to be taken to protect confidential information. Parties should not solely rely on contract provisions to protect their confidential information.

INAPPROPRIATE LIABILITY PROVISIONS : 

8 INAPPROPRIATE LIABILITY PROVISIONS Unlike normal licensing agreements, a licensing agreement involving intellectual property can give rise to different types of significant liabilities on the parties. E.g.. Breach of confidentiality, producing goods or services prejudicial to public health under a trademark which is licensed may give rise to significant civil and criminal liabilities on the licensor. The agreement should provide for appropriate liabilities on the parties, by assuming different situations which can give rise to such liabilities. Should provide for consequential damages.

VAGUE AND AMBIGUOS ROYALTY PROVISIONS : 

9 VAGUE AND AMBIGUOS ROYALTY PROVISIONS For example, a royalty provision may require a 5% of gross sales of licensed invention, but calculation of royalty would be very difficult if the product is sold with other products or bundled with other goods, where no price could be established for the licensed product individually. The agreement should provide for the base amount on which the percentage to be applied along with appropriate illustrations.

Contd….. : 

10 Contd….. Agreement should address all possible scenarios: 1. Sales to go through affiliates or related parties. 2. Bundled sales. 3. Component sales. 4. Discounted sales. If the royalty is based on net sales then the agreement should expressly provide that what may be deducted from gross sales.

INADEQUATE PROVISIONS FOR IMPROVEMENTS OF INTELLECTUAL PROPERTY : 

11 INADEQUATE PROVISIONS FOR IMPROVEMENTS OF INTELLECTUAL PROPERTY The agreement should define the term “improvement”. Rights and obligations of parties in an event of improvement of intellectual property. Royalties on improvements should be addressed, based on the degree of improvement.

FAILURE TO ADDRESS THE MECHANICS : 

12 FAILURE TO ADDRESS THE MECHANICS Failure to address where intellectual property resides and how it will be transferred from the licensor to licensee, especially in case of trade secrets. Failure to consider whether additional materials are necessary for the licensee to take full advantage of the licensed rights.

SCOPE OF LICENSE NOT DEFINED WITH PRECISION : 

13 SCOPE OF LICENSE NOT DEFINED WITH PRECISION Practice of the convention of defining the scope of even the most complex licenses into a single sentence using as many clauses and corresponding commas as necessary, quite often leads to ambiguity in the grant of license. Combining all forms of intellectual property in a single license grant often leads to mis-mash of licensed rights.

Contd.. : 

14 Contd.. To avoid confusion in license grant, parties should consider the following techniques: Use simple declarative statements instead of complex clauses for license grant. Make effective use of the terms which are defined in the agreement to reduce ambiguity and easier to read and understand. Separate license grant for each form of intellectual property. Avoid superfluous language.

Contd…. : 

15 Contd…. Avoid contradictory terms for example “sole and exclusive”. Consider supplemental or explanatory provisions to define the scope of license grant.

FAILURE TO ADDRESS CHANGES IN THE BUSINESS ENVIORNMENT : 

16 FAILURE TO ADDRESS CHANGES IN THE BUSINESS ENVIORNMENT It is impossible to assume the future with absolute precision but following points must be considered : Development of competing intellectual property in future (improvement or substitutes). Market declines or business downturns. Mergers and acquisitions. Changes in technology.

Slide 17: 

17 Thank you