Critical Terms for Intellectual Property License Agreements (Part 1)

By: Sean Clancy

Intellectual property (“IP”) license agreements come in many shapes and flavors.  But all IP licenses boil down to one party giving another party permission to use some IP.

IP may include patents, trademarks, copyrights, trade secrets, and rights of publicity.  Some license agreements cover one type of IP like a single trademark, or copyrights for a single song, or maybe a single valuable data set.  But often a single license agreement covers multiple types of IP.

Because each type of intellectual property differs from other types, agreements covering multiple types of IP require different contract provisions.  A trade secret license requires airtight confidentiality terms, for example, while a typical copyright license may not.  So it’s a good idea to hire an experienced IP lawyer to make sure the contract handles each type of IP correctly.  Regardless of the subject IP, well-drafted IP license agreements address certain critical terms.  This series of blog posts will discuss critical considerations for all IP license agreements.

First, all IP license agreements must identify the correct parties.

Although this might seem obvious, it is worth confirming that key parties are correctly identified, consistent with the purpose of the license.  Licensor grants the rights — so does the identified licensor really own or have the right to license all the IP in the agreement?  Or is some of the IP legally owned by someone else?  Should a subsidiary or other party be licensing this IP instead?  It is critical to confirm the IP owner and understand licensor’s chain of title before entering the agreement.  If a licensor cannot legally license the intended IP, the entire deal could collapse.

Conversely, is the licensee (the one receiving the rights) the correct party to be granted the license?  Or should there be a different licensee?  Sometimes additional parties need to use the licensed IP, beyond the initial licensee, to realize the economic benefit of the deal.  But the parties negotiating the deal might not identify all those additional parties at the outset.  If the licensee has a family of related entities, subsidiaries, or key contractors, are they allowed to exercise the licensed rights too?

Typically, the licensee wants open sublicense rights, meaning the licensee can share the IP rights with other parties.  But the licensor wants control over parties who use the IP.  If the licensee and licensor are sharing profits, both parties may benefit from allowing other entities to use the rights, balancing licensor control with licensee’s right to easily sublicense.

If the parties don’t know all the entities that will need to use the rights, they can specify groups of acceptable sublicensees in advance, define what makes a sublicensee acceptable, or list other pre-approval criteria to qualify additional sublicensees.

Unless the agreement specifically prohibits it, basic contract law presumes that the parties can assign a contract to a third party.  Licensors typically want control over assignments, so they aren’t surprised by some new third party using their IP.  At the same time a licensee will want flexible assignability provisions to account for the possibility of reorganization, merger, or other transfers.

For more on IP licensing agreements, stay tuned for Part 2.