Licence agreements

Negotiation of licence agreements and solutions for disputes

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Licence agreements

We work for licensors and licensees. We find it a false economy to skip over a licence agreement.  This is because opportunities to maximise or minimise revenue may be lost. We deal with many different types of licence agreements.  We use our experience to guide you.

Our service will help secure that your intellectual property rights are developed, exploited and respected under a licence agreement. We work for businesses operating both in the UK and internationally, often with strong technology and brands. We review, draft and enforce contractual rights.

Licence agreements – tips for success

Our top tips we consider with you are:

1. Ensure you own your IP

We will establish and document the ownership, whether the IP is a patent, know-how, trade mark, design or trade secret.

2. Safeguard the licensed product or invention’s value

There are a variety of ways to safeguard which we examine for you including:

  • Making sure the IP is valid;
  • Defining the terms for use of the IP;
  • Renewing, as appropriate, the IP rights;
  • Enforcement of the IP rights. Here the novelty of your invention determines the risk that similar products will emerge.

3. Licence or royalty type

The royalty premium depends on the exclusivity of the licence, e.g. for which region(s) or industry(ies). Royalty payment mechanisms we can suggest include:

  • Fixed amount paid periodically;
  • Percentage of the sales figures;
  • Combination of both.

4. Licence scope

You want to control your IP, and develop your IP to exploit new applications or market. Hence we make sure that the licence agreement limits the use or exploitation of your product or technology.

5. Warranties and indemnities

Someone might consider your company is infringing their trade-mark or design and threaten licences you may have granted. So we carefully review and negotiate warranties and indemnities to protect both parties.

6. Product liability

We consider what guarantee you’ll offer for the licensed product, and who will face product liability claims.

7. Quality control

If the finished product doesn’t work, your company’s and other licensors’ reputation are potentially damaged. So we define:

  • Quality control checks on the finished product;
  • Assurances that these quality control checks will be completed;
  • Sanctions if the quality control checks are not completed.

8. Intellectual property: improvements and ownership

We establish who owns any improvements made to the licensed IP.

9. Licence Terms

We always define the licensing period. The period is followed up with provisions to define:

10. Legal action against infringement

Obviously you want to safeguard your IP against infringement. We therefore advise on who is responsible for taking legal action against the infringer, and who pays the costs.

Licence agreements – key considerations

A licence agreement commonly transfers the right to use intellectual property. The familiar software licensing agreement provides a good example of the mechanics:

  • A company purchases software. Usually the seller grants the company a licence to use the intellectual property. Without this licence, the company would breach copyright law.

In the software industry, the licence agreement is usually termed an end user licence agreement, or EULA. The licence:

  • Monitors the number of users for charging purposes;
  • Restricts the type of work for which the software can be used.

A licence agreement is contractual. We negotiate the terms we consider you will need. The licence could be:

  • National or local;
  • Multiple or one-off;
  • Exclusive or non-exclusive.

No written licence agreement

Businesses that establish a good working relationship may have an oral licence agreement. Each business licences its intellectual property to the other. A business may just licence its intellectual property in return for a fee. There is often no written licence agreement. An oral agreement can stand up. However, there are risks, such as:

  • In the event of a dispute, is it easy to ascertain the exact terms, such as royalty payments, and the intellectual property subject to the licence?
  • It is likely with an oral licence agreement that the term is indefinite, i.e. unlimited in duration. That can be a problem for the licensor.
  • The oral agreement may have implied terms that need to be evidenced in a deed. Those terms will then be void.

Assessing conduct is a good starting point. However, that will cost, so best position is to have a bespoke written licence agreement in place, signed by licensor and licensee.

Risks with any licence agreement

If you do not understand the scope and terms of the licence agreement, you risk being:

  • Locked into obligations;
  • Exploited, as you give away more rights than the fee warrants;
  • Restricted by the duration of the licence;
  • Restricted in your use of the licence.

Licence agreement drafting

You’ll reduce the risk of a dispute if the licence agreement is well drafted.  Under English law, contracts with consumers are subject to statutory protection.

Heads of terms

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.

The heads of terms typically covers the everyday, commercial issues negotiated by the company’s managers.

Issues that make or break the deal include:

  • Exclusivity: If you plan to grant multiple licences, then expressly reserve this right as otherwise you could be blocked;
  • What is being licenced;
  • Cost of the licence;
    • One off, annual, or royalty-based licence fees;
    • Payment provisions.
  • Beneficiary  e.g. an individual, many named individuals, an organisation;
    • Can the licensee sub-licence the licence;
  • Duration of the arrangement;
    • Conditions for continuation of the licence: e.g. sales targets;
  • Licence restrictions;
    • Purposes for which the intellectual property can be used,
  • Ownership of IP created by licensee that improves the product;
    • Assignment: if you plan to re-sell the IP at the end of the licence, then agree the terms. Consideration for pre-completion conditions is a must;
  • Early termination rights and costs;
  • Confidentiality.

Licensing strategy

You will be vulnerable if you have not established ownership of your IP.  To establish ownership we register all trade marks, designs, logos, patents and other rights.  Having registered intellectual property, we then ensure that the registrations are kept updated – a common problem.

Background to any licensing strategy

Our successful clients define their licensing strategy. We have the experience to:

  • Match the licence type to the business objectives;
  • Clarify each party’s obligations;
  • Negotiate terms in the light of commercial considerations;
  • Formulate bespoke licensing strategies;
  • Prepare exit strategies;
  • Litigate where a party breaches the licence agreement;
  • Provide management services that ensure compliance with the licence agreement.

Licence agreement track record

Some recent cases include:

  • We restructured 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 basically 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 prevented 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.