License agreements should always be prepared carefully in any business transaction which involves the use of IP. When licensing technology, software, trademarks, or copyrights, the contract shows the conditions under which the former gives the latter authorization to use the particulars.
Thus, not only for the licensor’s benefit but also for the proper execution of the contract, a license agreement should be thoroughly elaborated so that both parties understand their rights and obligations and the distribution of risks in the process of licensing. Here are guidelines on how one can draft a good license agreement.
How to Draft a Solid License Agreement?
1. Define the Scope of the License
The key to any license agreement lies in the provisions of the scope of the license. Specifically, it points to put and shut boundaries that define the activities that the licensee can undertake with the licensed IP. Key components include:
Territory:
Where can the licensee legally employ the use of the intellectual property? Is it confined to a certain country or a certain geographical area or is it available all over the world?
Field of Use:
You should determine in which industry or market the licensee could utilize the IP.
That is, licensing might be granted for certain markets while there might be restrictions for other ones; for example, a software company might license its product for medical purposes but not for financial ones.
Exclusivity:
Is the license exclusive or non-exclusive or sole license that you will get from the movie?
A sole license means that the use of the IP is allowed by a single licensee in a particular field or country. A non-exclusive license means that a license allows the licensor to grant a similar license to other persons. The restrictions of a sole license are that the holder of such a license can only use the IP and no others get licensed to use the IP.
Duration:
Of course, it is necessary to state when the license will be valid and operative. Is the license bought valid for perpetuity or does the license have a validity for a certain period of time only? Is it possible to renew the license?
2. Clearly Define the Licensed IP
One should provide as much information about the IP as it is possible. This causes a lot of controversy, especially when it comes to identifying the licenses’ assets. For instance, when licensing software, give specific details of the versions of software, its modules and any document that may come with the software. In case if it is a trademark, the specific mark together with classes of goods and/or services within which the mark is to be protected should be specified.
3. Specify Payment and Royalties
Needless to say, payment provisions and royalties should be clarified where the company that is to pay is identified and the rate that is to be paid is stipulated. Some key points include:
Upfront Fees:
Is the payment of the initial sum with reference to the license going to be made by the licensee?
Ongoing Royalties:
Most of the licenses contain regular royalty structures that depend on sales, usage or profit made out of the particular product or service. Specify when royalties are to be stated, the rate of royalty and if there are certain minimums.
Audit Rights:
To enhance compliance, the licensor is given the right to access the licensee’s financial records to check payment of royalties.
4. Address Maintenance, Support, and Updates
In a number of licensing scenarios, mostly technology or software licenses, the owner shall have to support ongoing maintenance and upgrades. Clearly specify:
Support:
To what extent the licensor will contribute, if at all? This may fall within the amount domiciled to license the channel or is there an additional cost charged for the same?
Updates and Upgrades:
If there is a right to use the IP, does the licensee get new versions or update the IP when they are available? Say yes and if so, under what conditions?
5. Rights of possession following results in improvements and modifications
In case the licensee is permitted to innovate or enhance the licensed IP, the ownership of such enhancements has to be addressed. The licensor might want to retain copyrights for the new work to be created based on the original work or there might be clauses which allow both parties to have an equal share of the copyrights. Stating this at the beginning eliminates potential problems in the future.
6. Confidentiality and Data Security
More often than not licensing of intellectual property rights is very much associated with providing information of a compromising nature. Ensure the agreement includes robust confidentiality provisions that specify: –
What Information is Confidential:
Outline ideas about what constitutes confidential information referring to technical data, trade secrets, and business plans.
Obligations:
They should also define how this information must be safeguarded and the duration of protection; the penalties in case of violation of confidentiality should also be stated.
7. Termination Clauses
All license agreements should incorporate the terms of the license termination since it is a way through which the two parties can come to an end of the license agreement. Common grounds for termination include:
Breach of Contract:
Explain what breach is and what the behavior of each of the parties is before the contract is brought to an end.
Non-Payment:
Some of the possible safeguards that can be put in place to cure such licenses are: This is normally so where royalties or fees ought to be paid then the licensor should be able to revoke the license.
Insolvency:
They also suggested that some clauses especially concerning bankrupt or insolvent parties should be included to give an automatic right of termination.
8. ADR and Law Applicable
It is just part of the approach to have provisions to address the issues arising on the solutions to the dispute. Options include:
Mediation or Arbitration:
Most of the contracts prefer arbitration as it is cheaper and time-consuming as compared to litigation.
Governing Law:
State the jurisdiction and the governing law that will apply to the legal contract. This is valid especially where one is entering into an agreement with a company from another country with probably a different legal system.
Conclusion
A good license agreement, therefore, depends on the need to be precise in the provisions of the agreement and to be proactive in anticipating certain concerns that may come up.
When one understands that the license ownership payment method and the termination clause have been outlined, then both the licensor and the licensee should expect to have a fruitful business relationship. In conclusion, one should always seek legal advice from a License Agreement Lawyer Perth when drafting or negotiating license agreements so that the legal issues are well dealt with.
