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Licensing and Corporate Partnering

An Overview of Licensing Agreements

Overview of Licensing Agreements

Subject matter The license grant Restrictions Ownership Payment Representations and warranties Covenants Indemnification Limitation of liability

An Overview of License Agreements

Overview of Licensing Agreements

Nature of property: a bundle of rights • License is like handing out sticks in the bundle

Subject Matter: What Is Being Licensed?

Overview of Licensing Agreements

Comparison to land ownership – grant of right to pass over land• When? • For what purpose?• Who? • Transferable?• Pay each time?• Etc.

“Runs with” or encumbers the property • Vs. just a promise, which is personal to the

grantor

Subject Matter: What Is Being Licensed?

Overview of Licensing Agreements

Forms of property in question• Not land, but rather• Patents• Copyrights • Also

Trademarks Trade secrets Data Domain names

Subject Matter: What Is Being Licensed?

Overview of Licensing Agreements

Form of property: Patents • Government-sanctioned monopoly (right to exclude

others), granted in exchange for disclosure of an advancement

• In U.S., per patent code, protects: “new and useful process, machine, manufacture, or

composition of matter, or any new and useful improvement thereof”

• Not protected: Not new or useful Outside of enumerated categories, things like literary works,

compositions of music, compilations of data, forms of energy – these alone are not eligible for protection

• Filing required – this is the disclosure part• Can stop others from: making, using, selling, offering for

sale, importing

Subject Matter: What Is Being Licensed?

Overview of Licensing Agreements

Form of property: Copyrights • Protects certain expressions of ideas “fixed in

a tangible medium of expression” Not merely ideas

Story about a white whale? Melville’s Moby Dick? No Yes

Idea of a photo-sharing app? App - fixed in code? No Yes

Subject Matter: What Is Being Licensed?

Whale image: Archibald Thorburn [Public domain], via Wikimedia Commons

Overview of Licensing Agreements

Form of property: Copyrights • Exclusive rights to:

copy import/export create derivative works perform/display sell transmit

Subject Matter: What Is Being Licensed?

Overview of Licensing Agreements

Forms of property in question• Trademarks

rights granted in mark indicates source of goods or services

• Trade secrets something not generally known have used reasonable efforts to protect gives you an economic advantage

Subject Matter: What Is Being Licensed?

Overview of Licensing Agreements

Back to the land analogy• Patents, copyrights etc. are the legal form… (like

fee simple, condo, etc.) • But which plot of land? In other words, what

technology?

Subject Matter: What Is Being Licensed?

Overview of Licensing Agreements

IP rights comprising or relating to…• Certain technology?

For example: flowing from sponsored research, or made while an employee

• Improvements? Made by whom? When? With my materials (e.g., in my lab)? With my resources? Using my confidential information? Related to my business?

Subject Matter: What Is Being Licensed?

Overview of Licensing Agreements

Subject matter The license grant Restrictions Ownership Payment Representations and warranties Covenants Indemnification Limitation of liability

An Overview of License Agreements

Overview of Licensing Agreements

Patent License• Licensor grants to Licensee a royalty-bearing, exclusive,

non-transferable, non-sublicensable, license under Patent Rights in the Subject Technology to manufacture, have manufactured, distribute, have distributed, use, offer for sale, sell, lease, loan and/or import Licensed Products during the term, in the Field, in the Territory...

Copyrights • Licensor grants to Licensee a personal, non-

sublicensable, non-exclusive, non-transferable, license during the Term  to: (a) use the Software on machines within Licensee’s network, (b) use the Software, in accordance with the Documentation, solely in accordance with the Software’s normal and intended use, (c) make a reasonable number of copies…

The License Grant – red bold are qualifiers describing the

sticks

Overview of Licensing Agreements

Subject matter The license grant Restrictions Ownership Payment Representations and warranties Covenants Indemnification Limitation of liability

An Overview of License Agreements

Overview of Licensing Agreements

Ying : Yang :: Grant : Restriction• No reverse engineering• Subcontractor restrictions• Market restrictions• Prohibition on using to make a competing product• Prohibition on providing benchmarking

info/reviews• High-risk activity restrictions • Negative cast of anything granted

Restrictions

Overview of Licensing Agreements

Subject matter The license grant Restrictions Ownership Payment Representations and warranties Covenants Indemnification Limitation of liability

An Overview of License Agreements

Overview of Licensing Agreements

Licensor maintains ownership of IP rights Who owns IP rights in: • New protectable subject matter?• Residual knowledge?• Feedback?

Ownership

Overview of Licensing Agreements

Subject matter The license grant Restrictions Ownership Payment Representations and warranties Covenants Indemnification Limitation of liability

An Overview of License Agreements

Overview of Licensing Agreements

Upfront fee Royalties (distinguish revenue sharing)

• $ per unit• % of revenue

Net or gross? For the whole company? Or [products that but for the license would infringe] Related services excluded? (Consulting, training, maintenance, support)

Share of sublicensing consideration Minimums

• Common with exclusivity Payment terms

• How frequently? (monthly, quarterly, annually)• How soon? (x days)• Interest if late?• Taxes?• Set-off?

Payment

Overview of Licensing Agreements

Subject matter The license grant Restrictions Ownership Payment Representations and warranties Covenants Indemnification Limitation of liability

An Overview of License Agreements

Overview of Licensing Agreements

Definition: statements describing state of affairs• “The Licensor is a corporation, duly organized…”• “The software performs in accordance with the

documentation”• Contains no viruses; has used C/R/E to ensure it contains

no viruses• Performance under this agreement will not conflict with…

Qualifiers• Materiality: e.g., “performs in all material respects”• Knowledge: shifting risk of the unknown

“To licensor’s knowledge, software contains no viruses”

Remedies upon breach: claim for damages; termination of agreement; repair or replace

Representations and Warranties

Overview of Licensing Agreements

Subject matter The license grant Restrictions Ownership Payment Representations and warranties Covenants Indemnification Limitation of liability

An Overview of License Agreements

Overview of Licensing Agreements

Definition: a promise to do / not to do something

Examples• Affirmative

Protect confidential information Diligent commercialization

• Hit certain milestones• Certain budget

Reporting comply with law Notify of infringers Carry insurance

• Negative Won’t disclose confidential information Won’t compete

Covenants

Overview of Licensing Agreements

Subject matter The license grant Restrictions Ownership Payment Representations and warranties Covenants Indemnification Limitation of liability

An Overview of License Agreements

Overview of Licensing Agreements

Allocation of risk between the parties for unfavorable developments: inter-party insurance• Claims, losses, damages, etc., arising out of…

Acts or omissions (any? or only those that are sufficiently bad; e.g., constitute negligence)

Violation of law by the other party Third party claims

• E.g., that there is something wrong with the product (product liability)

• E.g., that the product infringes that party’s IP rights

• Remedies: Defend? Indemnify? Make not-infringing? Get me a license? Refund?

Indemnification

Overview of Licensing Agreements

Subject matter The license grant Restrictions Ownership Payment Representations and warranties Covenants Indemnification Limitation of liability

An Overview of License Agreements

Overview of Licensing Agreements

Two main limitations• Certain kinds of damages excluded – consequential

damages Lost profit Reputational harm

• Cap on damages: At amounts received? Some other limit?

Examples of exceptions to the general rule (that certain kinds are excluded, or that damages are capped)• Violations of confidentiality• Bad acts• Breach of law• Indemnification obligations

Limitation of Liability

Overview of Licensing Agreements

Questions?