Negotiating an IP License to avoid future disputes

When negotiating a license agreement, it is important to specify the rights being acquired. This portion of the contract is called the grant clause, as it sets forth the extent of rights being transferred (granted) from the owner to the licensee.  Each type of intellectual property has different specific rights that can be licensed. However, if only some of the available rights are expressly articulated in the written agreement, it raises a question as to what the parties intended with respect to the rights not mentioned. Future disputes can be avoided by specifying not only what is included in the license but also expressly delineating any rights not included. The rights that are presumptively granted in various license agreements are described below:

Patents: the rights to make, use, sell, offer for sale, and import are granted in a license. The license should specify that continuations, CIPs, extensions, renewals, foreign equivalents, and applications filed by a specified date are included in the license (or expressly exempted from inclusion).

Copyright: the rights to reproduce, prepare derivative works, distribute, perform the work publicly, display the work publicly, and transmit the work are granted in a license.

Trademarks: the right to use the mark is granted in a license.

Trade Secrets: the right to access and use the confidential information is granted in a license. This is typically referred to as “know-how” and “show-how.”

Disputes also commonly arise over whether a licensee has a right to sublicense its right to others. When enforcing these agreements, the court will not look at the title of the document or clause; rather, it will review the nature of the relationship and transaction and the rights that would be necessary for the licensee to fully enjoy and benefit from the license grant. Should a patent licensee be able to have others make or import the product? There are many business considerations on both sides of the argument. However, it is best that the parties agree to the terms and conditions under which a sublicense would be allowable. If the license is silent on the issue, a court will have to interpret and construct the agreement. Under some circumstances, courts might allow a licensee to engage third parties to exercise rights under a patent for the benefit of the licensee, even when the patent license expressly prohibits sublicensing.

A written agreement should be a reference that guides the parties during their relationship. In the end, the goal of these agreements is to outline how the parties will and will not behave together. The clear the parameters, the less likely there will be misunderstanding and disputes that could lead to costly litigation. Take time in the beginning to consider and agree on all the relevant terms as an investment in a long-term successful business relationship.

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