Welcome to the Licensing Lawyer Blog!

December 19th, 2017
Welcome to the Licensing Lawyer Blog!

I know we're all inundated with electronic information, whether from "push" emails from various sources, blogs, listservs and other sources.  So why another blog?  Because:

  • It's sharply focused on licensing and IP transactions.  We'll be exploring some of the nitty-gritty issues and challenges that licensing people have to resolve in order to get a deal done  -- things like rights to improvements, patent indemnification, licensor duty to enforce against unlicensed infringers, joint inventions and the like.
  •  It's  about what licensing lawyers do: contracts.  It's about contract and deal structuring, drafting clear and succinct agreements that people can understand, deal strategy and negotiation.  In case you haven't noticed, there are lots of really lousy contracts out there -- so one of our goals is exploring "best practices" for contract drafting and negotiation in licensing and IP transactions.
  •  It's a highly interactive site where everyone can share their thoughts, insights and experience.  There are no right or wrong answers and no "experts" in this space: we can all learn from everybody else's experience.

 So welcome, and please join in!

Larry Schroepfer

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Rights to Improvements -- Part 1

September 15th, 2016
Rights to Improvements -- Part 1

Okay, so the Terms Sheet has been negotiated, all of the tricky financial issues have been resolved, and you're just a week or so away of inking the deal, right?

Unless the Terms Sheet is much more inclusive that it should be, wrong.  There are still some very difficult issues that need to be resolved.  And in my experience, the hardest one of all is rights to improvements.

To be clear what we're talking about here, the issue is whether, and to what extent, the licensee should have access to improvements that the licensor makes to the licensed technology after the deal is signed, and vice-versa:  whether, and to what extent, the licensor should have access to the licensee's improvements.   Although the issue does arise in pure patent licensing (i.e., a patent license with no technology transfer), it's really much harder in the context of technology transfer licensing.

So why exactly is this issue so tough?   There are a number of somewhat related reasons:

  • Each party has legitimate and very real economic concerns.

When it comes to whether the licensee should have access to the licensor's downstream improvements, the licensor will say (correctly) that the potential value of those improvements hasn't been factored into the license price, and it's not fair to give the licensee a free ride.  The licensee will say (correctly) that that downstream licensor improvements could substantially diminish the value (or even obsolete) the technology that the licensee paid for, and it's not fair to leave the licensee out in the cold.

When it comes to whether the licensor should have access to the licensee's downstream improvements, the licensee will say (correctly) that its investment in improving the technology is what gives it competitive advantage, and it's not fair to just give this value away.  The licensor will say (correctly) that it enabled the opportunity in the first place -- there would be no improvements but for the original license, and it's not fair that the licensor (and potentially its other licensees) should be left out in the cold.

There are four "it's not fair" statements in the last two paragraphs, all of which are true -- which means this really is an important commercial and economic issue.

  • What exactly is an "improvement" anyway?   

Any agreement that includes rights to improvements must distinguish between what is an "improvement' and what's "something else" (i.e., developments related to the licensed technology but not an "improvement" to it.  If you look at most contract definitions of "improvements", you'll see that they contain a very long string of words:  "changes, modifications, enhancements, developments, revisions, additions, updates, adaptations, variations, amendments", and (in a wonderful piece of legal tautology), improvements means "improvements".   Despite lawyers' multiplication of words, it doesn't really make a vague concept less vague, and for better or worse, there is no clear, bright line separating improvements  from other developments.  So the parties cannot be certain when they negotiate the agreement that they know the scope of what will and will not be covered by the improvements clause.

  • Will access to improvements be important? 

Where are the markets and technology going­?  Are improvements likely to be made, and will they be technically or economically important?  The answer, in most cases, is "who knows"?  You never know if the technology will gain market acceptance, if there will be a new, disruptive technology, if there could be new entrants into the market that might have a cost or technologic advantage, and on and on.  So you don't know at the outset whether this will be important or not.

So the bottom line on why Improvements is such a tough issue is that both parties potentially have a lot at stake, and they're dealing with massive layers of uncertainly -- both "contractual" uncertainty and "technical" uncertainty.

So what do you do?  Stay tuned for Part 2....

Larry Schroepfer

1 comment

Comment from: daniel [Member]  
Daniel

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Wretched Drafting 101: Say Something Once, Why Say it Again?

July 19th, 2016
Wretched Drafting 101: Say Something Once, Why Say it Again?

Last time, we talked about "Good Old Strunk'n'White" and why agreements written in legalese violate many principals of good composition.  This time, we'll talk about one of Strunk'n'White's fundamental principles and why I think it leads to the proposition that paragraphs in agreements should generally not exceed three sentences.

In the Strunk'n'White edition I grew up with, under "Elementary Principles of Composition", the very first principle listed is the following:

"Make the paragraph the unit of composition: one paragraph to each topic."

The authors go on to state that most any complicated subject (like a license agreement, say) requires subdivision into topics, "each of which should be made the subject of a paragraph.  The object of treating each in a paragraph by itself is, of course, to aid the reader.  The beginning of each  paragraph is a signal to him that a new step in the development of the subject has been reached".

So how does this apply to contract drafting?

In any complicated agreement, it's necessary to first break it up into related topics, which become the contract's main section headings (what I choose to call "Articles").  How you break up the material into different Articles varies with the author's skill and preferences, but for example, my "template" technology license agreement has thirteen Articles. ( As a side note, there should be some logic and "flow" to what goes into each Article and the order in which the Articles appear in the agreement, but that's another topic for another time).

Next, the related topics within each Article must be broken down into paragraphs (what I call "Sections").  Each section should deal with one single idea (or, as Strunk'n'White said, "one paragraph to each topic").  Sometimes a topic may be sufficiently nuanced or complicated that it's necessary to further break it down into sub-topics or subsections.  But the point is that each section should deal with one and only one topic.

If you do that, then in the context of agreement drafting, you should be able to say everything you need to say about any given topic in three sentences.  The first sentence should simply state the contractual agreement (something like, "This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware").  Sometimes, this is sufficient, but it's usually not -- usually there are either exceptions to the statement, or items that need to be further amplified, or other relevant agreement sections that need to be cross-referenced.  For example, the second sentence to the governing law clause might say something like, "Notwithstanding the foregoing, either party shall be entitled to pursue injunctive relief" in any appropriate jurisdiction.  The Section might also include a sentence defining agreed methods for service of process.

If you do write a paragraph in an agreement that has more than three sentences, you should examine it very critically.  Is it really limited to one topic, or are you trying to address two different topics?  Or, is the topic sufficiently complicated that it should be broken up into subparagraphs, each dealing with its own subject matter?

I'm certainly not saying you should never exceed three sentences -- every rule has its exceptions.  But if you find yourself writing page-long sections of eight sentences, you're probably dealing with separate concepts that should be handled in separate paragraphs.

Why go through this exercise and insist on this kind of precision?  Well, as Strunk'n'White says above, the reason for treating each paragraph itself is "to aid the reader".  If you want contracts that are straightforward and easy for any anyone to read and understand (not to mention contracts that are sufficiently unambiguous so as to avoid litigation down the road), then perhaps the single most important guideline is to keep paragraphs (sections) concise and focused.

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Wretched Drafting 101: Help I'm Lost!!

April 21st, 2016
Wretched Drafting 101: Help I'm Lost!!

Have you ever tried reading anything out of the Internal Revenue Code? If you have, then in addition to the almost willfully abstruse language, you'll find that you very quickly get lost. You don't know whether you're in a main section, a subsection, a sub-subsection a sub-sub-section (and on and on). You find yourself constantly flipping the page (or pushing "page up" on your screen) just to figure out where you are. And in the time it takes to do this, you forget what it was you were looking for and how it relates to the higher-level sections, so you start the process all over again.

There are two main reasons why this is the case:

  • There is no logic to the section/subsection/sub-subsection lettering and numbering.  Is a Roman Numeral higher than a capital letter?  Is a small-case letter higher than a romanette (i., ii., iii., etc.)?  There is really no a priori reason why there should be any hierarchy to any of this.
  • Nothing is ever indented.  The subsection four levels down is formatted just the same as the highest-level section.  Which is why you constantly have to keep flipping back and forth to establish what level you're on.

If you want to avoid drafting a contract where people get lost, these two problems suggest at least a partial solution:

  • Use decimals for section headings.  I've spent enough time working with engineers during my career, and this is one thing they taught me.  The main heading is Section 1.  Next comes 1.1.  Thereafter come 1.1.1, 1.1.1.1, 1.1.1.1.1, and however many more levels you need (actually, you shouldn't really need to go beyond 1.1.1 very often if your drafting is clear -- but that's a different issue for another Wretched Drafting post down the road).
  • Indent each level from the higher level.  With indentation, it's always easy to see how many levels you are down from the previous level.  If you need to flip back, all you need to do is look for the most recent section that's one indent level up.  It's also easy to see how a given level (say, 1.1.1, 1.1.2 and 1.1.3) relate to the higher level, in this case 1.1.

If you do these two things, the agreement ends up looking something like this:

2.1 License Grant.  For the Term of this Agreement, Licensor grants to Licensee a nonexclusive, worldwide, paid up license under the Licensed Patents to make, have made, use, import and sell Licensed Products, subject to the following: 
   2.1.1 Territory.  Licensee's rights shall be limited to selling Licensed Products only in the Territory.
   2.1.2 Field of Use.  Licensee's rights shall be limited to selling Licensed Product only in the Field of Use.

 

 

 

 

Regardless of whether the substance of what you're writing is clearly articulated (another matter for later discussion), and least the readers of the agreement will know where they are.

Larry Schroepfer

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Wretched Drafting 101: Legalese and Good Old Strunk'n'White

March 15th, 2016
Wretched Drafting 101: Legalese and Good Old Strunk'n'White

When I was in school "back in the day", everyone was required to take a course on written grammar and composition (they called it "Rhetoric" back then).  The Holy Grail of Rhetoric was a slim book entitled "The Elements of Style" by William Strunk and E.B. White.  Except no one called it "The Elements of Style"; we called it "Strunk'n'White".

Strunk'n'White started out with a chapter devoted to grammatical rules.  This was pretty ho-hum stuff -- things about punctuation, use of parentheses, matching tense and case, and all the other "right" things to do. 

But then Strunk'n'White did something novel: it articulated a number of rules of composition to aid in writing well, not just writing correctly.  It said that grammatically correct writing isn't necessarily good writing.   It espoused simple, short, clear, descriptive sentences and looking for the perfect word, not simply multiplying the number of words.

When we first encountered it, Strunk'n'White flew in the face of everything we thought we knew about composition.  We thought verbosity and "flowery" language were necessary in order to sound erudite.  We reveled in long, compound complex sentences, and paragraphs that went on for pages.  We loved trying to dissect meaning out of purposely obfuscated sentences and paragraphs.

Then we read a short story by Ernest Hemingway (it doesn't matter which one -- pick one that you like), and everything changed.  Hemingway writes short, declarative sentences, usually in the present tense, and usually in the active voice.  His paragraphs are short, usually only a few sentences long.  The language is clear, sharp and vividly descriptive.  In short, he does everything Strunk'n'White says you're supposed to do.

So why are Strunk'n'White and Ernest Hemingway relevant to contract drafting in particular and legal writing in general?  Simple: good contract drafting and good legal writing must be, in the first instance, good writing. 

There are lots of lawyers out there who persist in drafting agreements in legalese.  Legalese is verbose and flowery.  Legalese has long, compound complex sentences, and paragraphs that go on for pages.  Legalese purposely multiplies the number of words used on any topic.  Legalese's structure is cryptic, turgid and hard to follow

But guess what?  There is no such thing as legalese, and attorneys who insist upon writing in it are simply poor writers.  They need a good solid dose of Strunk'n'White.

The language in a well-written contract should be perfectly understandable by non-lawyers.  Of course there are difficult legal principles that are hard to articulate and assume a body of legal knowledge (think of something like patent exhaustion), and may therefore need an attorney's help for the non-lawyer to understand.  But it's one thing if you need a lawyer's help to understand a legal concept or the principle; it's another thing altogether if you need a lawyer's help simply to read what's written.

In the coming weeks, we'll be exploring some of Strunk'n'White's concepts and how they apply to contract drafting.  Our goal will be to explore concepts and best practices that will lead to clear, concise and understandable agreements.

Up next time:  Paragraphs and the three-sentence rule.

7 comments

Comment from: Bob [Visitor]
Bob

As a non- lawyer who reads contracts, license agreements, and patents, I have only one word to add.
Amen!

07/15/14 @ 09:28
Comment from: James J. Aquilina, Esq. [Visitor]  
James J. Aquilina, Esq.

Larry,

I agree wholeheartedly that verbose lawyers that intentionally obfuscate are nothing less than poor writers. I own a copy of Strunk & White and try to give it a read through about once a year. I also grew up a devoted Hemingway fan, and remain fond of his stories and terse style. As a patent attorney, I see some of the most tortured use of the English language possible, and I constantly push back on needless wordiness and confusing language (even in claims, where some practitioners see value in ambiguity). Keep up the good fight! I look forward to reading the follow-up articles.

07/17/14 @ 21:29
Comment from: Oliver Schmidt [Visitor]
Oliver Schmidt

Working in licensing audit and contract compliance I see contract interpretation issues due to contract language on a recurrent basis. I’ll have to give Strunk’n'White’s a read, if I can improve my own grammar then maybe it will pave the way for others.

07/18/14 @ 07:08
Comment from: Joyce [Visitor]
Joyce

Short, clear sentences are best, *especially* in licenses. See this story about the million-dollar comma:

http://www.nytimes.com/2006/10/25/business/worldbusiness/25comma.html?_r=0

07/18/14 @ 11:22
Comment from: barron [Member]  
Barron

Pithy prose, aiming for this myself. Obfuscation, we find, is often intentional. Why?
I do not know. Does one party avoid specific performance by
making vague the language within those much mentioned
"four corners" [of the contract].
Thoughts?

10/20/14 @ 19:20
Comment from: rossvesq [Member]  
Ross

I’m looking at my copy that has faithfully accompanied me for over a quarter century to every job and every desk I’ve sat behind. While Strunk & White is an invaluable asset for every lawyer and writer, I feel compelled to lament another problem. People in their late 20s and younger have atrocious writing skills. This stems from their use of the same abbreviated words and phrases they use on smartphones, etc., for everyday drafting. I am appalled by how poorly they write. God help them in another 10-15 years as they attempt to climb their career ladders only to find that their writing holds them back.

03/12/15 @ 07:14
Comment from: Intellectulaw [Visitor]
Intellectulaw

I am getting a copy of Strunk’n'White.

04/12/16 @ 16:24

Nondisclosure Agreements: To Mark, or not to Mark?

March 15th, 2016
Nondisclosure Agreements: To Mark, or not to Mark?

One issue that often crops up in Non-Disclosure Agreements is the steps that the parties need to take in order to identify exactly what information will be subject to the nondisclosure and nonuse obligations.  There are two schools of thought:

  • One approach requires that all written information must be marked "Confidential", "Proprietary" or the like.  This is usually accompanied by a requirement that all information disclosed orally or visually must be identified as confidential at the time of the disclosure, and that the disclosing party follow up by sending a letter or email after the fact "confirming" that the information should be regarded as confidential.
  • The other approach is the "throw in the kitchen sink" school: all information, regardless of what it is, how it's disclosed or whether it's marked, must be treated as confidential, unless it falls into a category of exclusions (public domain, already known, etc.).

The argument in favor of a strict marking/identification requirement is that the recipient shouldn't be subject to contractual obligations unless it's properly put on notice of exactly what information it needs to protect -- if you tell me what I need to protect, I'll do it, but I can't assume liability for disclosure of information that I have no reason to know is confidential. 

The argument in favor of the kitchen sink approach is that, in the course of the parties' interchange, lots of people are going to be discussing lots of information, and most of them aren't lawyers -- they're not attuned to the "legal niceties", and the recipient shouldn't be able to escape liability for wrongful disclosure just because somebody failed to mark or identify information that is obviously confidential.

Which approach is better?  Well, it depends in the first instance on whether a party is the disclosing party or the recipient party.  If it's a one-way NDA, and I'm the recipient, I want to require that the discloser strictly mark and identify all information that must be treated as confidential.  I'd also want to take this approach even in a two-way NDA, if the other party will predominantly disclose the most and/or more sensitive information.  If I'm the discloser, on the other hand, I want to take the kitchen sink approach and require that the recipient treat all information as confidential unless it falls into an exclusion.

But in most collaborations, the obligations will be mutual -- it will be a two-way NDA, and each party will wear the discloser "hat" and the  recipient "hat" for some of the information.  What do you do then?  Here are a few thoughts:

  • I used to be of the strict "mark and identify" school, but have evolved some way towards the kitchen sink approach.  I still think that a marking requirement for written information may be reasonable and something that the parties can reasonably be expected to manage, but the requirement of following up a verbal or visual disclosure with a written confirmation just simply doesn't work.  In 30+ years of practice, I have seen this requirement actually followed all of once, and was amazed when it happened.  People simply aren't going to remember to do it, and I don't think the recipient should escape liability just because the disclosing party didn't send a followup communication that nobody ever does.
  • One approach that I've seen used is to include a marking/identification provision, but then provide that notwithstanding that requirement, information will nonetheless be deemed confidential "if it is of a type and nature that a reasonable person, in the context of the disclosure, would understand to be confidential".  This is admittedly an amorphous concept, but if you take an extreme case -- something like source code or a proprietary drug formulation -- there's no way anybody would think that this information isn't confidential, even if it isn't marked.  If the recipient makes an unauthorized disclosure, it should not be able to escape liability on what amounts to a technicality.
  • A variant of this approach is to include a marking/identification requirement, but then provide that certain specifically-identified information will be presumptively confidential irrespective of marking/identification.  This could include things like source code, proprietary formulations, drawings, specifications, customer lists, or anything that either party believes should be in this category.  The more specific that the parties can be on what information falls into the "presumptively confidential" category, the better.

So I'm sure that the "to mark or not to mark" debate will continue, and I'll admit to taking an extreme position myself if the context merits it.  But in a true two-way exchange, a more satisfactory approach is to be a little more nuanced than to follow the rigidly mark versus throw in the kitchen sink dichotomy.

1 comment

Comment from: Mark Anderson [Visitor]
Mark Anderson

In my experience:
(1) the vast majority of CDAs involve disclosures of routine information, and should have standard terms that are reasonably acceptable to both parties, not very one-sided terms
(2) it helps to make people be reasonable if a 2-way CDA is presented
(3) as you say, people very rarely comply with the marking requirement; they are therefore shooting themselves in the foot by accepting such a requirement
(4) the marking requirement is a bad habit that many large corporations have adopted, along with requiring a time limit on confidentiality. Too many people follow these habits or trends without thinking much about them.

In summary, I agree with the kitchen sink approach in most cases.

03/16/16 @ 09:35