Many small tech oriented business are being set up in Alpine Utah. Licensing is a great way for a small start-up business to grow. Often a start-up firm will enter into a licensing agreement with a larger firm. If your Alpine, Utah start up is negotiating a licensing agreement with another company, consult with an experienced Alpine, Utah corporate lawyer.
Unfortunately, what is clearly the highest priority for the start-up firm may not be as important for its larger partner. In many cases, the larger firm may decide to take a different strategic direction, often using one or more products that compete with or replace the products developed by the start-up firm. Accordingly, the start-up firm will attempt to build in mechanisms for retaining the interest of the larger firm, including prohibitions on competitive activities and milestones to be achieved in order for the large firm to retain its position as the exclusive distributor. Whether your are a start up, a small family owned business or a large corporation, you should seek the assistance of an experienced corporate lawyer when you are negotiating a licensing agreement.
Expropriation of Licensed Technology
When the licensee is an actual or potential competitor of the licensor, a real concern arises as to whether or not the licensed technology will be utilized in a manner that minimizes its value to the licensor. In some cases, it may be extremely difficult for the licensor to prevent a licensee from exploiting the licensed technology following the expiration of any statutory rights or the termination of the license agreement. In any event, negotiation of any licensing agreement requires that the parties carefully focus on any territorial limitations or other contractual restraints necessary in order to alleviate the concerns of the licensor regarding the use of the technology.
Risks to the Value of Goodwill
As a party to a licensing arrangement, you may have a concern about protecting the value of the goodwill associated with your products or activities. For example, if a licensor licenses trademarks to the licensee for use in connection with the distribution of the licensor’s products, it will want assurances that the licensee will maintain the quality of the licensed products in accordance with the expectations of the licensor’s existing customers. Similarly, when a firm licenses a new product from another firm for inclusion in its product line, it will want to ensure that the new products perform at the same level as the licensee’s other products. In either case, a failure of one of the parties to meet the reasonable expectations of the other has the potential for diminishing the value of the goodwill associated with that party’s business.
Licensee’s Costs of Exploiting Licensed Rights
For the licensee, the potential costs associated with fulfilling its obligations under the licensing agreement are not insignificant. Although the licensed technology may permit the licensee to pursue its plans to expand its existing product line or increase market penetration in the face of competitive pressures, the use and exploitation of licensed technology may require substantial outlays of capital. Moreover, royalty payments based upon the volume of production or gross sales must also be taken into account in assessing the costs of marketing the new products.
Obviously, the clause granting the licensee the various legal rights to exploit the technology embodied in the licensed subject matter is one of the most important terms of the license. As such, it is important for the parties to clearly understand all of the legal rights possessed by the licensor relevant to the proposed transaction, as well as the intended use of each of these rights by the licensee. This information allows the “granting clause” of the license to be drafted in a manner that precisely enumerates the rights to be given to the licensee and the permitted uses of the technology.
Many of the issues relating to defining the scope and use of the licensed subject matter follow from the fact that all of the various intellectual property rights are, in theory, divisible, and can be used, in whole or in part, by more than one person at a time for identical or dissimilar purposes. As such, the licensor has a good deal of flexibility in developing a network of licensing relationships that maximize the potential for full exploitation of the technology while permitting the licensor to maintain control over the activities of each of its licensees. On the other hand, the licensee will want to ensure that the license is broad enough to ensure it will be able to fully exploit all the underlying technology.
The key issues to be considered in formulating a granting clause are the definition of the actual legal rights to be the subject of the license; the permitted uses of such rights; whether or not the licensee is to have the exclusive right to practice and use the legal rights granted in the license for the purposes specified; and whether the licensee will have the right to grant further licenses (i.e., sublicenses) to third parties. The answers to each of the aforementioned issues will determine the scope and utility of the license grant, as well as the amount of consideration a licensee might well be asked to pay for the use of the license.
Definition of the Licensed Technology
The agreement should define the current and contemplated subject matter of the license, including each of the elements of the statutory rights and related know-how to be transferred from the licensor to the licensee. Also, since a license is an ongoing relationship, the parties must address the effect, if any, of changes in the nature of the licensed rights after the term of the license has begun, as well as the consequences of any improvements or enhancements to the underlying technology. While there may be an obvious temptation to simply describe the licensed technology in a manner that conforms to business, technical, or functional usage (e.g., all technology necessary to manufacture the gadget pictured in Exhibit A), it is important to carefully consider the actual legal characterization of the items to be covered, particularly if they will change over the period of the license.
Issued patents in all countries where the licensee will be engaged in the activities contemplated by the relationship should be included in the license, generally by reference to an exhibit that sets out the name, number, and date of issue of each patent. As a general rule, the license will cover all of the claims in the included patents; however, the license grant may be limited to only those claims necessary in order to allow the licensee to perform its obligations or satisfy its own requirements.
The license agreement should include all patent applications filed prior to the date of the license, as well as any patent applications to be filed in the future with respect to any other part of the licensed technology (e.g., patent applications relating to technology originally licensed to the licensee as know-how). As described elsewhere, in those cases where it is contemplated that one or more patent applications will be filed with respect to a portion of the license technology, it is important for the license agreement to clearly allocate each of the various responsibilities that the parties will have relating to completing and prosecuting the applications.
The license agreement should specifically provide that the license will extend to the patent rights covered by an application when, and if, the patent is issued. Also, the license should be written in a manner that allows the licensee to use the technology described in the application during the period that the application is pending. This is important since in some countries a license of an application is only an agreement on the part of the licensor to license the patent when it is issued. In the United States, where patent applications are not published until the patent is issued, the license agreement should provide for the delivery of the patent application to the licensee and a license of the know-how set out in the application until the patent is issued.
Copyrights will usually be included in any distribution-based licensing arrangement, since the right to reproduce and distribute copyrighted material is an important element in those situations. Copyrights will also be included in software licenses, since copyright law protects many of the integral components of the software package. If copyrights are included in the license, it is important to list the title of the copyrighted work, the name of the author, and a brief description of the subject matter.
When the license relates to the sale and marketing of the licensor’s goods and services by the licensee, a trademark license is required in order for the licensee to use the logos, marks, and designs associated with the products. When trademarks are licensed, the parties need to negotiate the procedures for monitoring the quality of the licensee’s products.
Other Statutory Rights
In some jurisdictions, statutory legal rights relating to intellectual property may be denominated in a number of other ways. For example, mask works may be protected property under various statutes and, as such, should be so identified in the license. A mask work license should include a brief description of the mask or chip product, including any important features or functions, the process technology utilized to fabricate the chip from the mask work, and the part number assigned to the chip by the licensor.
Trade secrets, or know-how, are often an important, if not fundamental, part of licensed technology. For example, even if the licensee receives a license relating to the licensor’s patents, it is unlikely that the licensee will be able to fully exploit a patented invention without access to the concomitant trade secrets. Therefore, most patent licenses will also include a mechanism for identifying and licensing all of the trade secrets of the licensor necessary for the licensee to fulfill the purpose of the license. Moreover, in certain cases, the licensor may have elected not to seek patent protection with respect to a specified process, in which case the value of the license lies in the trade secrets.
A trade secret license presents more difficult problems in describing the licensed subject matter, and, in such cases, it is particularly important for the parties to agree on the procedures to be utilized to complete the transfer of information. In the license, the description should usually be broadly stated in order to include all of the knowledge, information, and experience possessed by the licensor in connection with the anticipated use of the technology. For example, the granting clause might include a transfer of all technical information necessary in order for the licensee to manufacture, market, maintain, and repair the products set forth in the license.
Changes in Legal Form of Protection
The license should include any changes in the form of legal protection originally provided for the underlying technology. For example, there should be little controversy regarding the fact that any patents issued with respect to items formerly protected as trade secrets should be covered by the original grant. Also, it might become advisable to claim copyright protection for portions of the written documentation relating to the technology.
Whether you are a small start up or a large corporation in Alpine, Utah, an experienced corporate lawyer can negotiate the best licensing agreement for you and ensure that your rights as the licensee or the licensor are protected.
Free Consultation with a Corporate Lawyer in Alpine Utah
When you need legal help with a business or company in Alpine Utah, please call Ascent Law for your free consultation (801) 676-5506. We want to help you.
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