Licence agreements

Negotiation of licence agreements and solutions for disputes

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Licence agreements

You will find it a false economy to skip over your licence agreement.  This is because opportunities to maximise or minimise revenue (depending upon whether you are the licensor or licensee) are easily lost.  

Our successful clients define their licensing strategy. They enter into negotiations prepared. We can help define a strategy.  We work for businesses operating both in the UK and internationally. We review, draft and enforce contractual rights across many industries including technology, software, brands and the creative sector.

Licence agreements – avoidable risks

The biggest risks, all avoidable if dealt with in time, include:

  • You find you are locked into unintended obligations;
  • You are exploited, as you give away more rights than the licence fee/royalty warrants;
  • You are restricted by the scope and duration of the licence; and/or
  • You find restrictions impede use and enjoyment of the product licensed.

Licence agreement checklist for negotiation

We see clients benefit from thinking through the following:

1. Ownership rights

Licence agreements can extend to all forms of intellectual property including patents, know-how, trade marks, design rights or trade secret.  Bolting down your ownership of the IP before the licence agreement is signed is obviously key.

 

Negotiation point

Have you thought about who owns the IP in any enhancements?  Consider negotiating who owns IP enhancements to stop them slipping through your grasp.

2. Safeguards

There are a variety of ways to safeguard the underlying value of the product under the licence agreement.

 

Negotiation points

Consider negotiating for:

  • Restricted use to preserve the opportunity to seek new revenue streams;
  • Robust enforcement powers in the event that the value of your intellectual property is threatened. Without deterrent your risk is increased.

3. Price appropriately

The licence fee/royalty structure will depend on the exclusivity of the licence, exposure to risk, product liability and support offered for the licensee.

 

Negotiation points

  • Costing needs to reflect the region(s) or uses licensed.
  • Once the licence agreement is in place often your flexibility to alter the pricing model goes. Consider reserving the right of review.  This is especially important if you are licensing a new product.
  • Liability is usually split into that required under statue for the particular product and that offered voluntarily. The costing for quality control checks is part of the negotiation.

4. Licence scope

If your product is under development you will want to keep new markets open to you and not your competitors.

 

Negotiation point:

The scope can be limited under a licence agreement. But this is usually a bespoke feature prepared around your product and marketplace.

5. Warranties and indemnities

Warranties and indemnities in your licence agreement usually come into play if someone considers that you are infringing their copyright, trade-mark or other forms of intellectual property. You may find yourself threatened with an infringement claim which needs dealing with.

Points for negotiation:

If you are a licensee seeking an indemnity against such claims from the licensor.

If you are a licensor secure an indemnity to claim if your product was used by the licensee in an infringing manner.

6. Licence agreement terms

The important terms for you will depend upon whether you are the licensee or licensor, your negotiation power and a host of other factors.

 

Suggested negotiation points:

Based on past experience core negotiation points revolve around:

Avoiding deal breakers

An initial heads of terms agreement can simplify negotiation. The heads of terms clarifies key issues. This can save time and money when drafting the full agreement.

Common deal breakers

  • Users: can the licensee sub-licence the licence;
  • Assignment:who can the licence be assigned to;
  • Enhancements: are modifications permitted and who undertakes them;
  • Pricing and support: always important.

Registration of the IP licence

Once your IP licence is in place it is important to register your licence agreement with a relevant registry. The deal will be weakened if not destroyed or if overlooked.

 

Implications on failing to register

Failure to record a licence will mean that legal rights are not passed over to you. There is a six month period to register an assignment. Delay would mean that you will lose your right to recover costs and expenses even if you are successful in an infringement claim.

If the existence of a licence is unclear you as a licensee could end up incurring costs defending unnecessary infringement claims.

Licence agreement successful negotiation track record

Some recent cases include:

  • We restructured a national sandwich takeaway chain’s licensing model.  This improved brand protection and enhanced commercial exploitation opportunities. We also prepared supporting documentation to execute geographic expansion deals.
  • We manage the licensing portfolio for a commercial dry cleaning service.   Our work is to protect our client’s future business and problems relating to leakage and competing businesses.
  • We dealt with a variation of a licence agreement to include a ‘put’ option.  This option gave the licensor the right to assign its intellectual property to the licensee at a pre-agreed price on the expiry of the licence agreement.  This type of arrangement is known as a put option because it allows the holder of the put option to force the transfer of property.  The property can be any property such as intellectual property or quite often put options are created over shares.  The put option provided our client with a safety net by guaranteeing a price for a fixed period.  This also gave certainty to the licensee who paid a fee to the licensor for the option to buy at the pre-agreed price.  A put option has to be agreed because put rights do not arise automatically by operation of any law.
  • We obtained injunctive relief to prevent a licensee from sub-licencing our licensor’s brand.  Our client, the licensor, was concerned about brand dilution. The injunction prevented the licensee from executing its commercial agenda.

A successful revenue management will depend upon its licensing strategy.  It is often too late to leave options unexplored until trouble starts brewing.  No two businesses are identical as the licensing strategy varies and for that reason we take the time to understand your priorities in order to advise on the best approach to optimise returns.