Aspects Of The License Agreement

Entering into a license agreement can be a very involved process, and it is usually best to have a lawyer involved in the negotiation process. When entering into a licensing agreement, the licensor (patent owner) is essentially giving a licensee (third party) the right to make and/or sell the patented or trademarked invention pursuant to the license agreement. Included in the issues that must be addressed in the licensing agreement are:

  • Length of time the license is granted.
  • Sublicensing rights of the manufacturer/distributor;
  • Exclusivity of the license;
  • Royalties and percentage payments;
  • Proceeds from the sale of the product;
  • Guaranteed performance or required minimum payments;

Negotiating The Agreement

Negotiating a licensing agreement can be an involved process that requires an attorney specializing in patent licensing issues. It is critical for a licensing agreement to contain all pertinent information to protect the licensor/inventor as well as the licensee. A license essentially gives a third party the right to make and/or sell the patented or trademarked invention pursuant to the license agreement. Licenses give a third party rights to manufacture or distribute an invention, but the original investor (and patent owner) still maintain full rights to the patent itself. Negotiating a license agreement is important for the inventor (licensor) and the third party (licensee) because it can be a lucrative partnership with the third party if properly negotiated. Licensing agreements must be fully negotiated and memorialized in writing. The negotiation process includes, but it not limited to, the following:

Identify The Parties Involved

The parties should be clearly and unambiguously identified in the licensing agreement. The rights of the parties should be outlined and the liabilities and duties the parties should be included. In the event that one of the parties breached the licensing agreement, it may be cause for termination of the agreement if the requirements are included in the agreement itself.

Describing The Invention And Products

The product being licensed should be described and depicted in a meaningful and unmistakable way in the licensing agreement. The product should actually be defined in the agreement – and all related components should be a part of that definition. Where possible, photographs or sketches of the product should be included (even as an appendix or an exhibit) on the licensing agreement. Having a complete and thorough description of the product being licensed and help avoid confusion in the future.

Specifying Rights Granted

The licensing agreement should clearly stipulate the rights and duties of the parties. The status of the license as an exclusive or non-exclusive license should be stipulated. The licensees' ability to sub-license to additional parties should be addressed in the agreement. Every licensing agreement is different, and every licensee and licensor can contract for their own terms and conditions incident to the license. It is imperative that all important rights be included in the agreement, as well as any limitations of rights.

Setting Agreement Term

The ability for wither party to terminate the licensing agreement is an important part of the contract. The specific duties of each party should be outlined, and it should be noted that failure to perform the required duties may give the non-breaching party the right to cancel the contract. Notwithstanding breach of default, the licensing agreement should stipulate the term of the agreement and the expected ability to renew. Generally speaking, the term of a license is often the full life of the patent. It is most practical to do it this way because of the limited life of most patents, and the time involved in setting up new licensing agreements.

Contracts And Letters Of Intent

Like all contracts, the licensing agreement must express an offer, an acceptance, and an exchange of value in order to be considered a legally binding contract. The intent of the parties also plays a big role in the enforceability of the parties, and when a party holds itself out with a specific intent, the law tends to require that the representation be enforced. That is to say, if a manufacturer sends a letter that they intend to enter into a licensing agreement with an inventor, and that inventor turns down other potential licensees as a result, the manufacturer may be required to follow through even if their intent was not genuine, so long as there was reliance by the investor.

Changes To The Product After The Agreement

Licensing agreements should contain a provision that indicates that the parties included any and all applicable terms in the agreement. There should be a statement that precludes interpretation or inference of additional terms not in the agreement. In the event that the parties want to change the product or the agreement itself, an amendment or a new agreement must be negotiated.

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