Licensing Agreements Explained
Very often in the world of Intellectual Property, someone has a brilliant idea, and they obtain a Patent in their own country. However, sometimes they don’t have the funds to take the idea worldwide or the facilities to manufacture the idea. In this scenario, license agreements may be exactly what they need.
A license agreement allows the Patent holder to release the rights in their Patent to a third party, who can manufacture the product for them, or to sell their product worldwide. The original owner of the Patent retains control, and earns income from this, while the third party handles the logistics.
If you need someone to prepare a license agreement for you, our experts are on hand to help with this process.
A license agreement can also be useful in relation to Trade Marks, Designs or Design Patents and is usually set out in a particular manner.
The first section of a license agreement usually identifies who is entering into the agreement (commonly referred to as ‘the parties’). Quite often this is simply the Licensor and the Licensee but, in some instances, other parties may have a joint or other interest in the agreement. It is important that the details of the parties are correct, including the correspondence address. Any discrepancy may result in the IP Register not being updated to reflect the true owner or cause a delay in infringement proceedings whilst it is corrected.
The next section usually defines terminology found within the license agreement itself. For example, rather than continually referring to “a product for detecting chromosome Interaction in cancerous cells” the product being licensed could simply be defined as the “invention”. Where there are multiple Patents, Designs or Trade Marks, this may refer to them as “the Patents”, “the Designs” or “the Trade Marks”. In addition, this section usually specifies the laws under which the agreement is to be governed. It is then usual to specify exactly what is being licensed and exactly what rights have been provided to the licensee. You would expect to find clauses relating to at least some of the following:
- Whether the license is exclusive or not
- Whether there is any limitation on the licensee’s use or sale of the IP such as the territories in which they may sell of whether they may manufacture the product covered
- Whether the Licensee may sub-licensee the IP to a third party and, if so, are there any conditions associated with that sub-license
- In the event that the license is to be terminated, how the parties should act to lawfully and properly bring about the contacts conclusion
- If one party breaches the conditions of the license agreement, the results of said breach, and any compensation for the other party
- What happens in the event that either party should be declared bankrupt or insolvent?
- What happens in the event that infringement action is brought or needs to be taken?
- Who is responsible for payment of renewal fees?
- How any disputes between the parties should be resolved
- Force Majure – unforeseen circumstances, usually outside of the parties’ control, which prevents them from completing their obligations under the agreement e.g. war, flood, riot.
This list is not definitive.
Consideration is something that has value to either party and can be exchanged for monetary value, goods or services, and forms the essential basis of an agreement. Therefore, consideration has a very important role to play in license agreements.
It may be that payment is provided in one lump sum or is made in several stages throughout the term of the contract. Royalties may be paid to the Licensor, often as a percentage of the sales made by the licensee.
The penultimate part of the agreement will generally state what has been agreed in terms of payment and the currency in which payment will be made.
There is then a section for each signatory to sign the document.
It is important to note that in Europe, particularly at the European Patent Office, and at the UK Intellectual Property Office, it is essential to have both parties sign and to have wet signatures for all contractual documents. Electronic signatures are not acceptable. Neither is it acceptable to have the signature of only one party.
In addition, it is necessary to state the position of the party signing and to date the document. It is always advisable to check with a reputable attorney in any country which would be covered by the agreement to ensure that there are no peculiarities required such as specific clauses, notarization or certification required.
A schedule of the Intellectual Property that is being licensed is usually attached to the license agreement as an appendix.
Timescale
The ownership of any Intellectual Property is established by virtue of the name recorded on the relevant Patent or Trade Mark register at any given time. Therefore, it is critical that the details provided are accurate. In some instances, there is a time limit for updating these details and failing to record changes can lead to real problems further down the line when an applicant wishes to prove that they are the rightful owner. For instance, it is not unusual for Patents to undergo several administrative modifications or changes in ownership. If each step is not recorded at the time of the change, the company may become obsolete and the relevant parties difficult to track down in order to obtain signatures for the required documents. Please note that in the United Kingdom and at the European Patent Office at least, assignment documents and licence agreements require signatures from both parties not just the receiving party.
If you are aware of any changes in ownership, assignment, or update to the existing details recorded on any Patent, Trade Mark or Design Register, please contact us as soon as possible. We are able to provide the relevant documentation and record these for you around the world.
With regard to time limits, most countries, with the exception of Austria, require that a licence agreement be recorded within 6 months of the date of the agreement. If the licence is not recorded, the licensee will not be entitled to recover costs in the event of successful infringement proceedings subject to the terms of the agreement. Recording the licence early means that the licensee would have no issues in establishing that they have the right to bring an infringement action. Difficulties in providing ownership may result in a failure to meet the requirement deadline to bring about such infringement proceedings altogether.
When recording at the European Patent Office whilst a Patent is still pending, the potential cost saving can be enormous as opposed to recording any documentation at each individual local Patent Office once grant occurs. Depending on the number of countries in which you validate, you negate the need for translations and multiple official and attorney fees in the various jurisdictions covered.
Protection for a Licensee
A licensee also has the opportunity to protect themselves in the event that the licensor should become insolvent. In this instance, the liquidators may terminate the contact within 24 hours having no regard to the dates or times stated in the agreement. However, if the agreement is recorded on the Patent or Trade Mark register, the licensee is protected against this outcome and the liquidators must abide by the dates and times stipulated.
Recordal also protects licensees against a situation whereby a licensor could fraudulently licence to them and then re-licence the same product to a separate licensee, thereby invalidating the first licence. If money or other means of compensation are being provided for the right to use a product by licence, this could be very costly to the original licensee(s) depending on how many times the licence is replicated. If the licence is recorded on the register, any subsequent licensees would see your interest in the Patent, Design or Trade Mark has been registered and the licensor would be bound by the original agreement.
Our team of experts are able to assist you with all of your patent and trade mark needs, and can answer any questions you might have. Get in touch today by giving us a call or make an enquiry.