We review, draft and negotiate licence agreements for both licensees and licensors. It can be a false economy to skip the review stage as opportunities are easily lost which are difficult to recover. Our goal is to achieve the best outcome.
Please do call us to discuss your licence agreement. We provide overviews and fee estimates leaving you in control of legal spend.
Working with us
We are a specialist legal firm for licence agreements bringing to you benefits which include:
- We have probably dealt with similar issues before. We can consider the surrounding structure in which the licence will operate. For example we have the expertise to review the commercials for the joint venture agreement, collaboration agreement, franchise agreement or business sale of which the licence agreement forms part.
- We act for businesses of all sizes. We find clients of the larger law firms are attracted to us because they know they will be welcomed by us and receive better value for money.
- We can work as part of your in-house team available as and when you need us.
Managing your licence agreement
Based on the issues we see arising in real life we have explained below for you pointers which are useful.
- Identifying avoidable risks under licence agreements;
- Licence agreement checklist for negotiation;
- Issues that can make or break the deal.
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.
Successful businesses define their licensing strategy. They enter into negotiations prepared. We can help you plot your path.
Licence agreement checklist for negotiation
We see clients benefit from thinking through the following:
1. Ownership rights under the licence agreement
Licence agreements can extend to all forms of intellectual property including copyright, 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.
Often licensees modify technology and software code. It is important to decide which party owns the modifications.
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 to consider under the licence agreement
There are a variety of ways to safeguard the underlying value of the technology or product being licensed.
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 technology or product is threatened. Without deterrent your risk is increased.
3. Pricing under the licence agreement
The licence fee/royalty structure will depend on the exclusivity of the licence, exposure to risk, product liability and support offered for the licensee. There are a variety of licence agreement models to think about:
- Some licence models work on a commission based on revenue generated by the licensee. Commission based licence fees do require thinking about as monitoring sales has to be transparent.
- Other licence models work on usage. Review clauses are useful to allow the licence fee to be tailored to the actual usage.
- Flat fees are attractive but in competitive markets the users may demand more sophistication.
- Many licence agreements come with helpdesk and technical support. The cost can be wrapped up into the licence fee or charged as a separate price point. Service level agreements are often used in connection with technical support.
- Hosting is becoming another consideration as more software is operated on cloud platforms. A cloud computing service can be offered on a “pay-as-you-go” or “pay-per-use” cost structure.
- If your technology or product involves the use of personal data you will have data protection issues and hence costs to consider.
- If your technology is combined with other technology and sold as a combined product.
There is a balance to be drawn based on whether you are the licensor or licensee. The licensor will be looking to contract for some discretion and licence fee pricing flexibility. Whereas often the user will want a more rigid licence fee pricing structure.
- Costing needs to reflect the region(s) 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.
- Provide for the ability to both add and remove resources, with a corresponding upward and downward adjustment of the service fees. This is particularly important for hosting agreements.
- Ability to negotiate rates for incremental and decremental use.
- Lock in any recurring fees for a period of time.
4. Licence scope
If your product is under development you will want to keep new markets open to you and not your competitors.
You should think about:
- Whether you want to grant an exclusive, sole or non-exclusive licence.
- Geographical scope- do you want to licence your technology, software or product in one or more countries or worldwide?
- What rights you want to afford to the person licensing your product- are they allowed to develop it or just use it?
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 under the licence agreement
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.
- If you want to stop your technology or IP sold under licence being used to build competing applications – the permitted uses will need to be well documented in the licence agreement.
- If you want to limit the regions or areas in which the licence can be used – make sure this is documented.
- Limit performance warranties as performance of technology is often based on many factors outside the control of the licensor.
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:
- How long will the licence last for;
- Breach of terms;
- Variation of terms;
- Loss of intellectual property ownership;
- Repercussions from
- Early termination,
- Failure to pay licence fee/royalties,
- Insolvency, and
Avoiding deal breakers under the licence agreement
An initial heads of terms agreement for the licence arrangement can simplify negotiation. The heads of terms clarifies key issues. This can save time and money when drafting the full licence 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 the relevant registry. The deal will be weakened if not destroyed or if you fail to register when required.
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.