Warranties And Proprietary Rights

Warranties in intellectual property law are often thought of as a way that licensees and licensors allocate the risks associated with the transaction.  One party making representations and warranties about a certain element will have an impact on the liability gained or released by each party to the transaction.  In many cases, a licensee should reconsider entering into a licensing agreement if the licensor refuses to may any protective representations and warranties to the licensee.

Importance of Warranties In Licensing Agreement

In a licensing agreement, it is important for licensees to get certain warranties from the licensor/inventor.  Specifically, the licensee should get a warranty that the intellectual property being licensed does not currently, and will not in the future, infringe on the intellectual property rights of any other third party.  If the licensing agreement contains a representations and warranties provision, the licensee is protected should an infringement claim arise.  Such a warranty would essentially indemnify, or shield the licensee from liability.  On the other had, a licensing agreement without the proper representations and warranties will allow the licensor to be free from liability should an infringement claim arise.  If the licensor never promised that the license was valid against any third party claims, the licensor will not be in breach of contract and will not have a duty to protect the licensee.  Thus, from the licensee perspective, a representations and warranties provision is an essential component of a licensing agreement.

Licensee Warranties

Licensee warranties include warranties that the licensee should obtain from the licensor, such as the representations and warranties related to infringement on the intellectual property rights of third parties, as previously discussed.  Additionally, licensee warranties also include warranties or promises that the licensee makes to the licensor in the license agreement. Included in the licensee warranties are promises from the licensee to the licensor that in exchange for the licensor indemnifying the licensee against third party claims, the licensee must warrant that they will accept limited remedies from the licensor. 

Specifically, the licensor may require the licensee to agree that the sole remedy for an infringement claims is to:

  • Permit the licensor to get the necessary licenses for the licensee to quiet the infringement action;
  • Allow the licensor to modify the product so that it no longer infringes; or
  • Agree that the licensee will accept an amortized fee refund in the event that a license or modification is unsuccessful.

With the proper licensee warranties, the licensor can take steps to protect their interests in the event that an infringement lawsuit is brought.

Proprietary Rights

Proprietary rights refer to ownership rights over a particular product or entity.  While a licensing agreement gives a licensee the right to use a product, it does not give the licensee any ownership rights over the patent.  Proprietary rights may only be gained if the patent itself is assigned by the patent owner, or if the patent or trademark is purchased for a lump sum payment.

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