A license agreement is an agreement regulating a party’s (the licensee) exploitation of the IP rights of another party (the licensor). License agreements are normally either exclusive or non-exclusive.
By exclusivity, the licensee is the only party having admittance to the licensed rights within a defined field, technically and geographically. By non-exclusive agreement the licensor may license the same IP right to several licensees at the same time.
Typically license agreements involve:
Definition of the licensed field
A license agreement may grant the licensee a right to exploit one or more IP rights in full. However, most agreements define one or more specific technical field(s) within which the licensee may exploit.
This definition is to our experience often the cause of later conflicts if it is not properly drafted. For example, if the definition is unclear and ambiguous and leaves too much room for interpretation, a licensor may be in a position where he faces undesired competition from his own licensee.
Definition of territories and products
Any license agreement should include language defining the geographical limitations of the license.
For all IP rights obtained for specific countries a natural geographical limitation is to one or more of these countries. However, if the agreement also relates to IP rights not limited to specific states, such as know how or copyrights it is advisable to explicitly consider included and excluded countries.
Even though the technical field is defined carefully as discussed above it is often also relevant to include a definition of the product(s) to be covered by the agreement.
Marking and marketing material
A licensee is granted a right to the market covered by the licensor’s IP, and therefore the licensee must acknowledge the requirements normally required by a patentee, such as providing marking information of the IP rights on products, packaging material or the like, to inform the user that the product is legally produced under the IP rights.
Likewise an agreement relating to trademarks should include a passage acknowledging the registered trademark rights on all material.
Models for calculating license fees
License fees, including royalties, may be calculated according to as many different principles as there are agreements, however they normally fall in either of the two categories:
- A royalty fee based on sold goods
- A fixed annual fee
Combinations are also often seen, such as a royalty fee calculated based on sold goods, yet with a minimal annual fee.
Competition clauses and anti-trust
Although a license agreement is made entirely between two or more parties, it must still be in accordance with the laws in the jurisdictions covering the agreement. In order to secure competition, many countries have competition laws defining how a commercial market may be regulated and divided. It is of importance to have a thorough knowledge of competition laws when drafting the agreement in order to avoid that the agreement may be declared fully or partly invalid due to potentially unlawful clauses in the agreement.
A license agreement should include clauses defining how the agreement may be ended. The agreement may automatically end at a predefined time, or the end may be requested by one of the parties.
Independent of the cause of ending the agreement, the agreement should include clauses defining the rights of the licensee after the agreement has ended.
It is essential to regulate if the licensee is requested not to disclose unpublished knowhow or other details, and whether the licensor provides any guaranties, such as guaranties regarding infringement of third party patent rights.
How may we assist you?
We can assist you in drafting license agreement whether you are the licensee or the licensor.
In particularly, we assist in the definition of technical fields and advise in the definition of territories, products and royalty calculations.
We are part of a network of attorneys in all commercially relevant countries, and cooperate with attorneys in other countries to secure that a license agreement fulfils national laws in relevant countries.