A lot of technology-driven businesses are based in Draper, Utah. As a technology driven business, your business is regulated by a number of rules and regulations. An experienced Draper, Utah corporate lawyer can assist your technology-driven business thrive.
One of the most basic elements of almost every form of technology-driven business relationship is the license, which facilitates the transfer of valuable legal rights and technology from one party to the other in order to further the overall purposes of the relationship. In a licensing arrangement, the licensor owns or otherwise controls the right to specify the uses of a specific valuable legal right, grants to the licensee, the right or license to utilize the legal rights for the purposes specified in the contract between the parties. In consideration for the grant of the license, the licensee agrees to compensate the licensor, perhaps by the payment of a flat fee or by payment of an amount determined by reference to amounts received by the licensee from the use of the licensed. rights. However, in some cases, the compensation may be “in kind,” such as when the licensee agrees to deliver finished goods to the licensor for resale.
Different from Assignment
A license is not an outright assignment of the legal rights from the licensor to the licensee, since the licensor will retain actual ownership of the licensed subject matter. When the term of the license expires, the licensed rights will revert to the licensor and the licensee will no longer be able to use any of the elements of the licensed subject matter still eligible for legal protection. As such, a license actually amounts to a form of rental or lease arrangement with respect to the subject matter, and the amount of compensation requested by the licensor is often computed with the intent of arriving at a fair rate of return in relation to amounts expended by the licensor in developing the licensed technology. For its part, a licensee compares the rental costs of the license to the burden of independently developing legal and viable alternatives to the licensed subject matter.
Scope of License
The scope of the license will vary depending upon the particular types of intellectual property rights included therein. For example, whenever the license relates to a patent, copyright, or trademark, the licensee will have the right, for the purposes set out in the license, to practice the patented invention, or to use the copyrighted works or trademarks, without fear that the licensor will exercise its legal rights to prevent practice or use by the licensee. On the other hand, a license involving trade secrets not only permits a licensee to utilize the trade secrets, but also requires an actual transfer of the underlying business information or technical data since, unlike the invention described in the patent or works or marks covered by copyrights and trademarks, it was theretofore maintained in confidence by the licensor.
Each licensing agreement must be tailored to meet the specific business relationship. Since the subject matter of the license, such as patents or trade secrets, can be broken down into smaller “baskets” of rights (e.g., the right to make a patented invention but not to sell the patented invention), all of which can be practiced by more than one party at a time (e.g., any number of persons can be granted the legal right to “violate” the patent monopoly), decisions regarding the scope and use of the licensed subject matter should be made in light of the licensor’s overall strategic plans for exploiting the licensed technology. However, since the licensee is presumably being chosen in order to provide a function that cannot be efficiently done by the licensor or its affiliates, the license should convey all of the rights necessary for the licensee to fulfill its obligations and earn a fair amount of compensation.
While the form of the license agreement will depend upon the specific transaction, the content of the agreement can usually be divided into three distinct categories. First, the agreement should define the fundamental economic and technical relationship between the parties, including the subject matter of the license (i.e., the legal rights being licensed); the permitted uses of the licensed subject matter, which might include the right to make, use, or sell particular products in specified demographic or geographic markets; and the amount of compensation to be paid for the license grant. Second, it is important to establish the procedures to be taken in order to protect the licensed subject matter. Finally, the license agreement should describe how the relationship between the parties will be monitored, regulated, and, if necessary, terminated. As such, the agreement will contain a variety of provisions relating to dispute resolution, accounting, notice, and termination.
Licensing agreements can be characterized by the subject matter of the license, such as a patent or trademark license, or by the permitted functional uses of the licensed subject matter, such as a manufacturing or distribution license. While, as a practical matter, the license agreement in a strategic business relationship will cover each of the types of intellectual property rights required in order for the licensee to perform the specified functional activity, there may be situations where, due to local laws or otherwise, it may be necessary for the parties to enter into a series of separate license agreements covering each element of the overall technology package.
Since a license agreement will cover one or more of the various forms of legally protectable intellectual property rights, it is generally useful to characterize licensing forms in relation to the underlying subject matter of the license. Accordingly, the parties may refer to a patent license, a trademark license, or a hybrid license, which includes two or more of the basic forms of intellectual property rights (e.g., patents and trade secrets). An experienced Draper, Utah corporate lawyer can help prepare a custom made license agreement for your business.
The holder of a patent has the right to exclude others from the making, using, or selling of an invention during a specified time in the country in which the patent has been issued. A patent license is an exception to the monopoly rights of the licensor and allows the licensee to utilize the subject matter of the patent without liability to the licensor for infringement. A mere patent license, without access to further technical information owned by the licensor, is only useful to a licensee with technical resources that permit it to independently develop products that might fall within the claims of the licensed patents.
A trademark license allows the licensee to use the licensor’s trademarks in the course of the licensee’s business, generally in connection with the manufacture and distribution of the licensor’s products. Since, in effect, a trademark license amounts to a lease of the licensor’s goodwill, the licensor will impose a number of special obligations on the licensee calculated to closely monitor and control the quality of the goods or services marketed by the licensee under the scope of the licensed trademark.
Copyright protection extends to written works and even software, and affords the holder the exclusive right to publish the copyrighted work or determine who may publish the work. As such, a copyright license permits the use by the licensee of copyrighted materials developed by the licensor, including written materials prepared in order to assist users in understanding the operation of the licensor’s products.
Trade Secret License
While patent, trademark, and copyright licenses generally involve items easily identified by reference to publicly available information, a trade secret license involves business information and technical data which, by its nature, have been maintained in confidence by the licensor and, as such, must be effectively transferred from the licensor to the licensee. A trade secret license creates a fiduciary relationship between the parties, in which the licensee agrees to ensure that information is not disclosed in a manner that undermines its commercial value.
A license arrangement may cover more than one of the basic types of legal rights described above. For example, when a licensee will manufacture and distribute one or more of a licensor’s products, it is generally necessary for the license to cover all of the patents and trade secrets required in order for the licensee to manufacture and service the products, as well as the trademarks and copyrights relating to the marketing and operation of the products. Even in cases where a licensee only intends to use a patented invention for its internal purposes, the license will include any trade secrets required to use the invention and permission to reproduce and distribute internally any copyrighted materials relating to the operation of the invention.
Classification by Permitted Functional Uses
Since most license agreements in a strategic business relationship are hybrids, it may be useful to characterize the licensing arrangement by reference to the specific functional uses of the transferred technology. In so doing, the parties can focus upon the activities to be performed by the licensee in the context of the broader relationship. The categories commonly used tend to follow the exclusive rights granted to the holder of the particular legal right by statute.
A use license simply provides a licensee with the right to use the technology rights. A use license does not necessarily include the right to copy, modify, market, or distribute the technology or to use the technology to manufacture goods or products for sale or distribution by the licensee. A common example of a use license is the end-user software license granted to users of consumer software. Another form of use license arises when the licensee is given a right to use a patented process or know-how strictly for internal purposes and not for the marketing of products and services.
A manufacturing license is a common form of licensing arrangement and includes the right to manufacture the technology, manufacture products that include the technology, or manufacture products through the use of the technology. A manufacturing right should be explicitly granted in the license agreement and may have different meanings depending upon the nature of the technology covered by the license. For example, the holder of a patent is granted the exclusive statutory right to make the products referred to in the patent; a manufacturing license with respect to a patent provides the licensee with the right to make the products. If a copyright is licensed, the licensee will have the right to copy the specific work.
A modification license allows a licensee to correct, modify, enhance, or improve the licensed technology for use in one or more specific applications. As a general rule, when a licensee is given the right to modify the original technology, the licensor will have the right to use any of the modifications, including any statutory rights that may arise as a result of the licensee’s activities, under a “grant-back” provision in the original license agreement.
Although a licensee may be given the right to copy and manufacture licensed technology or make products using or including the technology, it does not normally have the right to distribute and market the technology or its by-products to third parties in the absence of a specific distribution license. In some cases, the manufactured products can only be sold to the licensor. However, in many cases, the licensee will have some right to distribute one or more of the products manufactured with the technology to third parties in a specified geographic or demographic market.
The rights of the licensee to use licensed technology may, in some cases, include the right to sublicense to third parties all or a portion of the various legal rights originally granted to the licensee. Sublicensing may often be appropriate when the licensing arrangement is intended to facilitate the distribution of products in a given market and the licensee wishes to engage the services of third-party distributors. However, broad sublicensing rights should raise concerns on the part of the licensor regarding its ability to protect the technology rights and retain some degree of control over its distribution channels and practices.
If your business is entering into a licensing agreement contact an experienced Draper, Utah corporate lawyer. This will ensure that your rights are protected and your business thrives.
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