Intellectual property licensing

18 Pages·2014·4.377 MB·English

SIMPLY IP
CONCISE NOTES ON INTELLECTUAL PROPERTY ISSUES FOR BUSINESS
INTELLECTUAL
PROPERTY LICENSING
SIMPLY IP – INTELLECTUAL PROPERTY LICENSING
Acknowledgements
The ICC Commission on Intellectual Property wishes to thank Douglas Kenyon and Bradley Grout
of the law firm Hunton & Williams LLP, the principal authors of this note. Douglas heads the
Trademark Counselling and Litigation practice at Hunton Williams and is a member of the ICC
Commission on Intellectual Property.
We also thank the following for their input and comments: Lei Wu (CCPIT Patent and Trademark
Law Office), Vanessa da Silva Ferro and Mariana Reis Abenza (Dannemann Siemsen), Elisabeth
Logeais (UGGC Avocats), Beatrice Renggli (Axpo Power AG), Moritz Lorenz (Freshfields Bruckhaus
Deringer), Cormac O’Daly and Jacques H.J. Bourgeois (WilmerHale), and David Koris (Shell).
Copyright © 2014
International Chamber of Commerce (ICC)
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ICC Publication No. 760E
ISBN: 978-92-842-0249-2
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Table of contents
Introduction......................................................................3
I Discussion........................................................................3
II General considerations .........................................................4
Identification of the parties.....................................................4
Governing law.................................................................4
Scope of rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Representations and warranties.................................................6
Term and termination ..........................................................7
III Patent-specific considerations .................................................7
Registration...................................................................7
Scope of grant ................................................................8
Cross-licensing ................................................................8
Tying .........................................................................9
Compulsory licences...........................................................9
FRAND ......................................................................10
IV Trademark-specific considerations ...........................................10
Writing requirements and registration ..........................................10
Quality control ...............................................................10
Ownership and goodwill .......................................................11
Policing and enforcement ......................................................11
Use restrictions................................................................11
Termination .................................................................. 12
V Copyright-specific considerations ............................................ 12
Writing requirement .......................................................... 12
Ownership ................................................................... 12
Royalty sharing............................................................... 13
The ICC Commission on Intellectual Property ...............................14
ICC Tools for International Business .......................................... 15
The International Chamber of Commerce (ICC) ............................. 17
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Introduction
As intellectual property rights (IPR) continue to grow as a portion of a business’s assets
around the world, business deals involving the licensing of such rights (whether as a
licensor or licensee) are also becoming more common. Despite its growth, however,
IPR licensing is fraught with perils that may not be obvious to transactional attorneys,
especially where the licensing deals may involve IPR in multiple jurisdictions. Different
jurisdictions have different laws that must be considered for each individual licence, and
different types of IPR involve different policies that also can affect the terms of a licence
agreement.
The purpose of this publication is to identify and explain, at a relatively high level, common
issues that businesses may face in connection with IPR licensing. Like any contract, some
IPR licences may be implied, while some are valid only if the licence grant is expressly
stated in writing and signed by the parties. Such common legal principles as well as
many other less obvious considerations will assist businesses in determining whether an
IPR licence is appropriate and necessary in the first instance, and ensuring that any such
licence is properly documented and implemented moving forward.
This publication was developed under the auspices of the ICC Commission on Intellectual
Property. A summary of its contents can be found in the 2014 edition of the ICC Intellectual
Property Roadmap available at www.iccwbo.org/products-and-services/trade-facilitation/
ip-roadmap
I Discussion
As a general matter, principles of contract law should apply to IPR licence agreements,
including country-specific laws such as the Uniform Commercial Code for IPR licences
governed under the laws of the United States, as well as international laws such as the
United Nations Convention on Contracts for the International Sale of Goods (CISG) for IPR
licences between businesses in signatory countries. In addition, many IPR-specific rules
and regulations may apply, such as rules promulgated by the World Intellectual Property
Organization, the Paris Convention, NAFTA, GATT, TRIPS, and regulations on technology
transfer and research and development agreements. However, how those laws apply
may vary from jurisdiction to jurisdiction and could depend on whether the licence is to
be implemented in a common law jurisdiction or civil law jurisdiction. Regardless of how
individual laws are applied, if at all, the following are some considerations that any party
or potential party to an IPR licence may face and should carefully evaluate before entering
into a final licence agreement. In addition to the general considerations for any type of IPR
licence agreement, the sections that follow offer some considerations specific to patent,
trademark and copyright licence agreements, respectively.
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II General considerations
Identification of the parties
One seemingly obvious, but critically important, consideration for any IPR licence is the
identification of the parties to the agreement. In cases where a party is a single, stand-
alone entity, the issue may be simple. However, where a family of entities with more
complex corporate structures is involved, the issue becomes more complicated. Questions
such as which entity owns the relevant IPR, where the entities are located, and tax
implications for the corporate family, require thorough due diligence from the outset. Due
diligence also may help determine whether any other entities have claims to the IPR at
issue, such as their own licensees, rights-holders such as authors, inventors, pledge-holders,
co-owners or entities having rights to pursue infringement of the IPR. It is critical to the
success of the licensing relationship to ensure that the licensor has sufficient ownership of,
and control over, the IPR, including any required registrations in the relevant jurisdictions,
to be able to grant the full scope of rights intended to the licensee (sometimes including
the right to sublicense), without any interference by third parties and without any
unintended interference to the existing business of the licensor, its affiliates and licensees.
In some cases, it might be more beneficial for one of the anticipated parties to designate,
or even create, a separate affiliate for purposes of being the actual party named in the
licence agreement. Local laws of the parties’ jurisdictions and tax considerations often
drive such decisions. The use of subsidiaries or affiliates may further impact decisions
regarding the structure of royalty payments, exclusivity of rights, as well as rights to
license/sublicense or assign the IPR licence under the agreement.
Governing law
Most jurisdictions offer some leeway for choice-of-law provisions in allowing the parties
to an IPR licence to select which jurisdiction’s laws shall govern the agreement and the
parties’ obligations under the agreement. Nevertheless, parties still must be aware of
any local laws, including governmental rules and regulations, that are mandatory — and
cannot be waived or circumvented by contract — so that they will govern the activities of
the parties as they operate under the IPR licence or otherwise implement the licence. In
particular, the parties must confirm that the intended IPR is actually protectable within the
relevant jurisdiction. Although an invention or a trademark might be protectable under the
laws of one party’s home forum, the same invention might not be protectable under the
other party’s forum, thereby undermining the entire purpose behind or need for the licence
agreement. Similarly, even if the invention or trademark could otherwise be protected in
all relevant jurisdictions, different rules regarding registration (i.e. first-to-file rules, first-
use rules, and related rules respecting priorities) could affect the parties’ ability to obtain
registration and ensure actual protection.
Local counsel often plays a critical role under this consideration. As noted above, certain
local laws — often antitrust and unfair competition laws — cannot be waived through
choice-of-law or other waiver provisions. In addition, whether a jurisdiction follows civil
law as opposed to common law could affect how the applicable law applies and how
the IPR licence terms will be construed. For example, some local laws will affect whether
a royalty rate — even if fully agreed by the parties — is permissible. Local laws may
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determine whether certain obligations — especially restraints on production or pricing —
violate antitrust laws. Tax collection, withholding and reporting requirements differ from
jurisdiction to jurisdiction. Different jurisdictions define and treat trade secrets differently,
and impose different rules and limitations regarding confidentiality and non-disclosure
agreements, including their duration. Local rules also sometimes govern the effect of
termination, including the right to receive mandatory compensation for excess inventory
or other residual costs after termination. These are the types of issues that must be
considered with local counsel for a full understanding of what additional obligations the
IPR licence will confer beyond the specifically agreed provisions of the agreement itself.
Scope of rights
One of the key business terms to any IPR licence is the extent to which the licensee may
use the IPR it seeks. Will the licensee be entitled to use the full field of the invention or the
entire category of goods and services denominated by a trademark, or only some subset
of those rights? Where the licensor intends to place some limits on the scope of IPR being
licensed, careful drafting of the grant of the licence is critical. With respect to the scope
of goods and services, special consideration should be paid to the parties’ respective
expertise in the various fields of use covered by the IPR licence. A licensor should consider
whether it is enabling a competitor in the same field, or whether it is simply ceding a
specific market segment in which the licensor is less well-positioned. IPR licence grants
also might be specific to a particular product or product line, rather than a more general
field of use. Both parties, however, should be cautious about limitations on scope of rights
that include restrictions as to numbers or volumes of products and potential expansion,
as such restrictions may raise antitrust and other anti-competition concerns in many
jurisdictions. The same applies to clauses setting minimum prices for the sale of goods
manufactured with the licensed technology and restrictions on the licensee’s use or
ownership of its own IPR. Careful drafting is all the more critical where various IPR are
licensed in the same agreement and the parties intend that royalties will differ among
the IPR.
Aside from the fields of use for an IPR licence, the parties should consider territorial
restrictions. Certain IPR are naturally restricted to a particular jurisdiction, as many local
intellectual property laws expressly limit the scope of protection to the specific geographic
areas where a patent, trademark or copyright is registered or within the jurisdiction of
the governing authority. Nevertheless, the parties may contemplate exclusive rights to
a licensee for a particular region in which the licensor claims ownership, but no rights
(or non-exclusive rights) for another region where the licensor’s invention or marks are
protected. In negotiating such territorial rights and restrictions, the parties should again
consider the likelihood of expansion and the potential for future competition to negotiate
the territorial scope of rights up front. Thus, once again, the parties must be cautious
about anti-competitive practices and should carefully craft the language of the IPR
licence agreement accordingly. Some jurisdictions may permit restrictions on marketing
outside of designated territories but do not permit restrictions on actual sales outside
those territories, especially if the sales are unsolicited. As a general matter, IPR licence
agreements between competitors are more heavily scrutinized than those between non-
competitors, so careful descriptions of the parties’ fields of operation and expertise may
help any licence agreement withstand such scrutiny.
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Along with the field of use and territorial scope of an IPR licence, the parties should
consider whether a licensee will have the right to sub-license or assign its right under the
IPR licence and to whom. Among other concerns would be merger or acquisition situations
where either the licensor or licensee, and their assets and obligations, become part of
another entity. Unless expressly addressed, licences (and associated IPR) ordinarily would
pass to the new entity by operation of law and could drastically change the effective scope
of rights from the original licence grant. In addition, if the licence is an exclusive grant to
a particular licensee, the parties should determine at the outset whether the licensor will
continue to utilize the IPR. Quite often the greater the rights granted to a licensee, the
more likely a licensor is to require certain minimum payments or minimum sales or other
minimum targets that will allow the licensor more flexibility to terminate the IPR licence
and replace the licensee in the event of underperformance.
Similarly, the scope of an IPR licence, in addition to other provisions such as the term
and whether the licence is exclusive, can impact the parties’ rights in the event of the
insolvency of one of the parties. For example, the United States Bankruptcy Code provides
the trustee of a bankruptcy entity the opportunity to assign certain types of agreements,
including certain IPR licences, to a third-party notwithstanding non-assignment language
in the agreement. Likewise, a trustee for a bankrupt licensor may be able to reject those
agreements under the Bankruptcy Code, thereby limiting, or in some cases terminating, a
licensee’s rights to use the licence and limiting any recovery for damages to whatever may
be recovered from the debtor entity’s bankruptcy estate.
Representations and warranties
The terms of an IPR licence agreement should include specific representations and
warranties, though such terms are no substitute for thorough due diligence before the
agreement is executed. At a minimum, licensees likely will insist upon commitments
by the licensor to be the rightful owner of the IPR being licensed or have all necessary
rights and approvals to grant the IPR licences if the licensor is not the owner of the IPR.
Related to such ownership, licensees may wish to negotiate for additional indemnification
by the licensor in case the licensee is accused of infringement. Licensees also may seek
commitments from the licensor to police the IPR against infringement by third parties, and
to enforce the IPR against unauthorized use so that the licensee may enjoy the full benefits
of the licence.
Licensors, on the other hand, may seek terms in the IPR licence limiting their liability in
the event the licensee exceeds the scope of the licence grant. Licensors also may seek to
obtain an indemnity from the licensee for manufacturing defects or other product liability
claims arising from the licensees’ manufacturing, distribution, marketing, sale or other use
of goods and services covered by the licence, namely where the licensor does not direct
or control those activities. Such limitations/indemnities are, of course, subject to local law,
and may be limited or rendered unenforceable under certain circumstances — for example,
through the application of strict liability doctrines respecting the design and manufacture
of products.
The goal of such negotiations is to allocate the risks associated with unauthorized use of
the IPR, whether that unauthorized use be by the licensee, the licensor, or third parties.
Such risks also may include the cost of any compliance with government regulations.
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Thus, negotiating representations and warranties (including potential remedies for breach
of those representations and warranties), indemnification, limitations of liability and
enforcement of the IPR can significantly reduce the risk of disputes and costly disruption
to business during the term of the licence.
Term and termination
The parties should give significant consideration to the length of an IPR licence
agreement, and how the parties can terminate the agreement if needed. The parties may
wish to structure an agreement with shorter-length terms that automatically renew, or
are otherwise renewable upon written notice by one of the parties, thereby creating a
potentially long-term relationship while still giving the parties a greater degree of control
over the relationship.
Termination by either party other than by expiration of the agreement or its defined terms
can be more complicated. The parties may wish to allow for termination only for cause,
which the parties should define in the agreement itself, or allow for termination without
cause upon notice. In some jurisdictions, local laws may require a certain amount of notice,
or may otherwise define a “reasonable” notice period in the event that it is not specified
in the IPR licence agreement. In some jurisdictions, also, termination without cause may
subject the terminating party to a claim for damages if the terminated party has not had a
reasonable opportunity to recoup its investment. Given that IPR licence agreements may
underlie a party’s entire business, or at least a specific business unit or product line, parties
generally should consider expressly defining the amount of notice that must be given to
protect them against surprise termination, thereby allowing for a sufficient transition or
alternative arrangements.
In addition, the parties should consider defining the parties’ respective rights and
obligations upon termination. An IPR licence is often accompanied by the exchange of
confidential information that must be returned or destroyed at the end of a licensing
relationship. The parties also may wish to define a period of time to allow for transition and
sell-off of existing inventories affected by the IPR licence. If it is not clear from other terms
of the licence agreement, the parties also should define their respective ownership rights
upon termination, such as whether a licensee retains any rights to derivative inventions
or related materials not directly covered by the scope of the licence grant. Given that
termination of licences might be accompanied by disputes between the parties, specificity
of the respective rights and obligations can reduce the scope of any such disputes and
make them easier to resolve without additional burden or expense.
III Patent-specific considerations
Registration
Some jurisdictions have no requirement that either a patent owner or a licensee register
a patent licence with the relevant governmental authority. Nevertheless, some local laws
provide benefits to registration, especially in the case of exclusive licensees, and others
require registering the licence to make the agreement effective against third parties and as
a condition of enforcement. For example, in many European countries, exclusive licensees
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may recover damages from third-party infringers if they register the exclusive patent
licence with the patent office. Compliance with time limitations or other requirements
may be conditions precedent to the effectiveness of the registrations. For example, UK
law requires exclusive licensees to register their licence agreements within six months of
receiving the licence grant if they wish to recover damages for infringement.
Scope of grant
In addition to the field of use and territorial scope issues highlighted above, parties to a
patent licence agreement may wish to further divide the scope of the grant into the various
rights granted under the patent laws of the relevant jurisdiction. For example, US patent
laws, like those in many other jurisdictions, grant patent owners the exclusive right to make
and/or sell the patented invention, among other things. A patent licensor may wish to
grant one licensee only the exclusive right to make or manufacture the patented invention,
while granting another licensee the exclusive right to distribute or sell the invention further
down the stream of commerce such as to retailers or end-users. Thus, the parties to a
patent licence agreement should give even greater consideration to the potential uses of
the patented invention and their impact on the stream of commerce. Such considerations
may warrant further specificity to the licence grant provision or the definition of the field of
use for the licence agreement.
Some jurisdictions provide for specific rights and obligations respecting the exploitation
of the results of joint research and development agreements and related IPR. Grant-back
clauses also warrant consideration and careful drafting in light of applicable jurisdictional
requirements. The European Union, for example, precludes the licensor of technology
from requiring its licensee to assign or grant back to it an exclusive licence to the
developed technology.
Cross-licensing
In some cases, a particular patented invention may be only one such invention in a broader
field of similar technology, with only a few claims or limitations separating the inventions
from one another. Where parties to a potential patent licence agreement operate in such
a field, the opportunity may exist for cross-licensing, where each party grants a licence
to the other party, effectively allowing both parties to combine resources to exploit the
protected technology. In such cases, it is often even more important to differentiate the
fields in which the parties will operate, unless they simply anticipate competing with one
another. In the latter scenario, however, the parties run a greater risk of antitrust or other
anti-competitive scrutiny from government authorities or other potential competitors
excluded from the cross-licensing arrangement. Indeed, in some jurisdictions, exclusive
cross-licensing by competitors is prohibited.
Cross-licensing arrangements also may lead to the creation of patent pools, or patent
thickets, where multiple patent owners pool their related patents covering a certain field
for licensing to one another and to others who wish to participate. Though there is nothing
inherently anti-competitive about patent pools, they are commonly scrutinized for anti-
competitive operations. Thus, potential patent licensors and licensees that intend to create
or participate in a patent pool must be particularly aware of local competition laws and
regulations and should consult local counsel before signing a licence agreement to the
pool of patents.
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Tying
Patent owners willing to license their inventions to others often seek to maximize the
return by including in the licence agreement access to other related technology or
information that might not be expressly covered by the patent. For example, the owner of
a patent covering specific computer software might license others to make, sell or use the
covered software, but only if the licensees also use another separate program, or particular
hardware item that is not covered by the patent. Thus, the patent owner/licensor “ties” the
licence grant for the patented invention to use of tangential or related items that also inure
to the licensor. In many cases, the “tied” items may be necessary to implement the licensed
invention, but in other cases, they are merely incidental to the invention.
As with patent pools and patent thickets, tying may not necessarily be anti-competitive
or impermissible. Still, such arrangements often invite additional scrutiny and depend
in large part upon the parties’ relative market power. Generally, in the EU, the anti-
competitive impact of vertical and horizontal agreements is examined pursuant to Block
Exemption regulations on vertical restraints as well as on technology transfer agreements
and research and development agreements. The antitrust assessment and benefit of the
exemption takes into account inter alia the market shares of the parties to the concerned
agreement (below or equal 30 % or 20 % depending on the nature of the agreement and
whether the parties are competitors, subject to variants). Even if the market share exceeds
those thresholds, the tying arrangement might still be permissible, but a more complex
analysis will be required.
Note that licensors sometimes try to “tie” negative obligations as well to the licence grant;
namely, requirements to refrain from making or selling items related to the invention, or
to refrain from a certain line of business in exchange for taking a licence to the patent at
issue. Even greater scrutiny applies to such arrangements, and in many jurisdictions, such
restrictions are per se prohibited, regardless of market power.
Compulsory licences
In some countries, a patent owner and potential licensor face the possibility of a
compulsory licence being granted to the invention, against the will of the owner. In the
United States, such compulsory licences typically exist only as the result of litigation
between the parties, where the compulsory licensee has been found to infringe the
licensor’s patents but where the licensor was unable to obtain injunctive relief preventing
the infringer’s continued use of the invention. In other countries, however, a party may
apply to the government offices in charge of patent registration, and those government
authorities may grant a compulsory licence to the applicant, which may be subject to
conditions.
As a general matter, such compulsory licences will not be permitted for or granted to
direct competitors. Nevertheless, a patent owner in a dispute with a potential infringer or
who has been approached by a potential licensee may wish to consider the possibility of a
voluntary licence when negotiating or litigating, especially given that a “voluntary” licence
gives the parties greater control over their ongoing relationship.
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