Intellectual Property License Agreement Checklist

For various reasons, developers and owners of intellectual property such as patents and trademarks may not wish to make utilize or commercialize what they own. If others wish to do so, a license agreement is a good vehicle. The detail and complexity of such agreements will vary with the property being licensed and the business in which the license will be utilized. This intellectual property license checklist errs on the side of inclusiveness, so in a given situation some of its elements may not apply. Often, however, for both licensor and licensee the license agreement is the central pillar of a business plan. In such cases, all possible details and arrangements that could be part of the license agreement should be considered.

1. Definition of the Licensed Property. The licensed property may be technology, patents (U.S. or Foreign), patent applications, proprietary know-how, trade secrets or confidential information. The property being licensed should be meticulously defined in the intellectual property license to avoid conflicting interpretations.

2. Grant of License. Is the intellectual property license to be exclusive or non-exclusive? Do the contemplated arrangements include cross-licensing by which the parties grant each other licenses to their respective properties? Should there be a territorial limitation on the license, such as the right to use a trademark only in a certain city or state? Does the licensor wish to restrict how the licensed property will be used? Should the licensee have the right to assign the license or sublicense all or a portion of the licensed property?

3. Term of the License. How long should the license last? Important factors to consider include (a) the investment the licensee must make in order to use the licensed property; (b) the time required to develop a successful business with the licensed property; and (c) the possible appreciation or depreciation in the value of the licensed property over time.

4. Changes and Improvements to the Licensed Property. Is the licensee permitted to modify or improve the licensed property? If so, who owns the modifications or improvements? If the licensor makes changes or improvements, do these automatically fall under the license such that the licensee has rights to use them? Often intellectual property licenses do not adequately address these issues.

5. Royalties. Royalties may be paid in a lump sum or over time. They may be a sum certain or based on a calculation, for example as percentage of sales. Royalties might be adjust downward periodically if the licensed property will decline in value over time, as may be the case with an expiring patent or know-how that eventually becomes public knowledge. By the same token, if the licensor continues to develop new property that comes under the license for the benefit of the licensee, the royalty formula agreed upon might yield higher payments to the licensor.

6. Reports. If royalty payments are based on a formula, the licensor will want adequate accounting and reporting requirements in the license agreement, along with an obligation of the licensee to maintain records. License agreements often contain audit provisions with cost shifting based on the outcome.

7. Infringement Matters. Consider the extent to which the licensor will warrant that the licensed property does not infringe on the rights of others. All warranties and disclaimers should be set forth in detail. In addition, will the licensor be obligated to take action against infringers, or will such action be optional? Should the licensee have the obligation to provide notice of infringement to the licensor? If there is a successful challenge to the licensor’s ownership of the licensed property, are the royalties payable reduced? Should the parties have a right to terminate the license?

8. Confidentiality. This is very important, especially if trade secrets or confidential proprietary information are included in the licensed property. Consider designating a key employee within the licensee’s organization who will be responsible for limiting dissemination of such information, assuming control of its return and safeguarding, and reporting on the same to the licensor.

9. Rights and Obligations upon Termination. Will there be materials to be returned to the licensor? Should there be a non-competition agreement for a period of time after termination?

10. Miscellaneous. Final matters such as choice of law, dispute resolution, no assignment, etc. must be considered and added. Although these matters are routinely included in well-written agreements, they require careful consideration and drafting, and may require negotiation.

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