Whether you are drafting or accepting a licensing agreement, you must keep in mind that such a document is bound by intellectual property law. The terms ‘implied’ and ‘expressly’ or the phrases ‘exclusive rights’ and ‘non-exclusive rights’, for example, may mean differently in a license agreement.

Diligence must be exercised to ensure that licensees are, first and foremost, licensing rights from its rightful owners. You could unknowingly be pa ying royalties to third parties for licensed rights that belong to another. This is against the copyright act. Before you draft, distribute, sign, or terminate a licensing agreement, it would be helpful to ask yourself the following questions:

1) What rights are being licensed in the license contract?

License terms are usually defined by licensors. Any licensor who agrees to grant a licensee has the right to set his or her terms and conditions. He or she would also determine the license scope, which both the licensor and licensee must comply with. In some instances, licensees could negotiate with the other party to come up with license agreements that will be mutually favorable.

Taking into account intellectual property rights, for example, there could be a limitation on the right and license to use a trademark. Such could be true for products that will undergo massive reproduction or large-scale manufacturing. Renewal terms of the agreement must also be clear since a licensing arrangement is often contractual and rarely perpetual. A licensee might want to renew it after expiration. Additionally, what is prohibited in the agreement and any grounds for termination of the license grant should be specified in the licensing contract.

2) How can each party be protected?

Licensing AgreementsTo protect both parties, licensing terms must be pursuant to relevant copyright and intellectual property laws. Aside from the above, covenants and representations also constitute a common licensing agreement. These may be on the ownership of licensed rights, warranties, non-infringement, or quality standards on licensed products.   

There are many provisions under copyright laws. Indemnification is another legal protection layer that would make the other party liable for legal trouble arising from wrongdoing. Such provision will, for example, indemnify a licensor from unauthorized use or misuse of the license, or the licensee from infringement claims.

3) What are the associated fees?

The licensing fee or royalty rate that the licensor is entitled to receive is a sensitive subject matter that often requires negotiation. The contract might require an initial license fee plus annual or monthly payments (that could either be fixed or based on net sales). In the case of the latter, the audit rights of the licensor must be taken into account. This means a periodic sales report must be provided for an agreed-upon period.

Licenses must also indicate how a licensee can terminate the contract in case his or her target minimum sales are not met, or in the case of a bankruptcy.

4) How can the contract take into account future circumstances?

The license agreement for specific rights must indicate how the sale of a company or its assets would affect licensing rights in the future. A consent requirement may be included in the contract before a party would grant a license to another.

When dealing with licensed software, you should also look into updated provisions. Future updates are often included with the software product to improve its merchantability. These should also be specified in software license agreements.

Whether you are granting rights for certain licensed products or are planning to license rights for intellectual property, you must first be familiar with the relevant clauses under copyright. Consult with a trusted law firm before proceeding to avoid getting sued. Get legal protection when dealing with license agreements.

Talk to an IP lawyer knowledgeable in intellectual property rights, copyrights, patents, or trademarks. Contact us at War IP Law for assistance.