Intellectual property law is a crucial topic. But few are familiar with the processes that protect their intellectual property assets. Many people think the United States Patent and Trademark Office (USPTO) processes a lot of patent applications, all for inventors who just want to get ahead of a competitor. However, intellectual property protection is so much more, and it is important to anyone running a business.
License agreements are one important area of intellectual property law. A license agreement involves at least two parties—a licensee and a licensor. The licensee is someone seeking to use the intellectual property rights of another for a specific period. The licensor, on the other hand, is the party granting rights for intellectual property or licensed products to licensees
Knowing the obligations of each party and what is prohibited and allowed by law is key to understanding license agreements. Like any other legal agreement, a party can sue you for any breach of a license agreement. To avoid this, it is helpful to know these eight dos and dont’s, whether you are the licensee or the licensor.
Do—Exercise diligence to know your licensor
Not all licensors are created equal. If a license agreement turns out to be invalid, the royalties you have been paying could be for nothing. Research the prospective licensor online. See if they have been involved in anything that is questionable. Be cautious, especially if it is your first time dealing with an intellectual property license.
Don’t—Settle for a vague description of what is being licensed
Specific terms may be imposed in any intellectual property license. Because these terms become part of your legal rights as licensor or licensee, they must be clearly stated in the contract. There should be no room for vagueness or ambiguity.
Do—Clarify every limitation specified in the license
Being granted the right and license to use any intellectual property is rarely absolute. Oftentimes, intellectual property rights are to be used only in limited circumstances. These can vary depending on the agreement. Clarifying exactly how and when you can use the intellectual property is critical.
Don’t—Ignore provisions on geographical and temporal limits
Licensees shall only use the licensed intellectual property in the geographic area that is agreed upon. Comply with these provisions to prevent having the license agreement terminated. Similarly, remember that license agreements are rarely perpetual. Exclusivity, expiration, and renewal terms must be specified in the licensing agreement.
Do—Take note of revocable or irrevocable clauses
Take note that unless stated otherwise, a license grant may be revoked. Events or violations that will lead to such revocation must be included in the licensing contract. Revocation, along with other licensing terms, is permitted in accordance with relevant contract and intellectual property laws. As such, knowledge of the law is crucial.
Don’t—Be complacent when it comes to discussions on fees and royalties
Negotiation is key to licensing fees and royalties. A license fee is often composed of an initial payment and annual or monthly payments, which are represented by fixed amounts. Some licenses, however, require an initial fixed payment and variable royalty payments made regularly. The amount of the royalty payment is often a percentage based on sales, which depend largely on the performance of the licensed product in the market.
Do—Ask about updates when dealing with a software license agreement
Although governed by the same laws, software licensing is a bit different. Check for software license agreements that include the right to get updates, which often address bugs and other issues. Including updates in the licensing agreement often improves the merchantability of certain licensed software, so there is a high likelihood that they are included. However, it may depend on the nature of the software, so make sure to clarify early on.
Don’t—Take indemnification issues for granted
The notion of indemnification is meant to protect one party from any wrongdoing committed by the other party. For example, indemnification would protect a licensor from the licensee’s unauthorized use or misuse of the licensed material, or a licensee from infringement claims asserted by third parties against the licensor. When you use a license agreement for something unlawful, you will be liable for issues arising from your own actions.
Drafting, accepting, or terminating a license agreement is a lot more complicated than it may seem. Before taking any of these actions, make sure you have a trusted IP lawyer on your side. A lawyer can explain in detail what the license terms mean, and how they can impact you and your business.
For clarifications on the above or for any other questions on license agreements, talk to us at War IP Law, PLLC. Call us at 202-800-3754 for an initial consultation.