Welcome to the Licensing Lawyer Blog!

November 16th, 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

No Comments yet

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.

No Comments yet

Optons, Rights of First Negotiation and Refusal: Do you Really Have Anything?

June 8th, 2016
Optons, Rights of First Negotiation and Refusal: Do you Really Have Anything?

A common provision in research and development agreements (particularly in Sponsored Research Agreements with universities, research institutions and the like) is that the research sponsor is granted the right, under certain conditions, to take a license to any technology and intellectual property rights that the developer or research institution develops in performing the research project.  This is most frequently couched as an "option to take a license."  But most of the time, the agreement says that the sponsor's option to take a license is "on terms to be negotiated".  This sounds very nice and very reassuring, but if there's one thing it's not, it's an option.

A true "option" is an agreement under which one party has the unilateral right to enter into a completely pre-defined deal, usually by giving notice and paying an option exercise fee (if any).  So an option to take a license is a document granting this right (the "Option Agreement"), with the full license itself (the "License Agreement") completely pre-negotiated and usually attached as an exhibit.  If the licensee elects to exercise the option, gives the required notice, pays any option exercise or license fees, signs the License Agreement, the deal is done.

What an "option to take a license on terms to be negotiated" really is is at most a "Right of First Negotiation".  A right of first negotiation is a contractual commitment on the research institution's part not to license the technology and/or IP to anybody else before giving the other party the "first" right to negotiate for the license.  In many instances (again, particularly in Sponsored Research Agreements with academia), that is all that it means.  None of the terms (particularly the financial ones) are pre-defined, nothing says that the terms need to be reasonable or consistent with standard industry terms or practices, nothing says that after going through the "first negotiation" exercise, the licensor can't license the technology/IP to somebody else on whatever terms they wish.  So the party in whose favor the "option" runs really doesn't have much.

(Okay for my lawyer friends, a right of first negotiation probably includes an obligation to negotiate in good faith, and if the other party doesn't, the jilted licensee may have a claim for breach of that obligation.  But what the licensee really wants is the license and access to the technology, not a lawsuit, even if it wins).

So if the option holder wants to be in a stronger position, what can it do?  Here are a few thoughts:

  • The first and most obvious is to try to negotiate as much of the license terms as you can (up to and including an agreed-upon draft of the license agreement itself), and include them in the option agreement.  The research institution will try to resist this, because it knows that once the research is completed and the sponsor is anxious to license the results, it will be in a much stronger bargaining position than it is at the time the option is granted.
  • The key terms to try to negotiate up front are, of course, the financial terms -- license fees, royalties, milestones, etc.  If the research institution is a university or other nonprofit, it will tell you that it's not permitted to pre-negotiate financial terms because of some arcane tax issue related to federally tax-exempt bonds.  The short answer is that it actually could if it really wanted to, but in most cases, probably won't.  Even in those instances, however, it might agree to a range of royalty rates, but understand that top of the "range" is what it will probably expect.
  • One thing that can make the "option" a little less open-ended is to provide that the license terms and conditions will be consistent with industry standards, and consistent with the licensor's licensing practices in other agreements that it has done.  This would at least provide "arguing rights" if the terms that the licensor seeks to impose down the road are too far out of line.
  • Perhaps the best thing that the prospective licensee can do to ensure that it gets a fair shake in the license agreement negotiations is to include the other "first" -- a Right of First Refusal -- in the option agreement.  A right of first refusal says that if the parties fail to agree upon the license terms, the research sponsor will nonetheless get the right to "match" the terms of any deal the licensor seeks to enter into with a third party if the negotiations with the sponsor fail.  This would typically run for only some limited time period (say, a year), but the mere existence of the right would ensure that the sponsor must be treated fairly.  The research institution will resist this -- rights of first refusal are notorious for making negotiations with a third party much more difficult, since the third party knows that the research sponsor could pull the rug out from under them.  But if the research sponsor has spent a significant amount of money funding the research, it has a good argument that a right of first refusal is fair.
  • Finally, aside from the legal and contractual aspects, I've found that most research institutions actually take the "option to license on terms to be negotiated" very seriously.  They understand that there is an ethical obligation attached to it.  And at least equally importantly, they understand that if they got a reputation for routinely jilting research sponsors, research money would  dry up pretty fast!

2 comments

Comment from: larry_schroepfer [Member]  

Comment received off-line, that I thought was excellent:

Larry:

Always enjoy your posts. Of course the university can negotiate real terms into the negotiation right, there are plenty of ways around the tax issue, but only a small percentage of universities have the sophisticated legal office that can do it. Here’s the real reason what you suggest is not done in the university space in corporate sponsored research agreements. The sponsoring corporations aren’t interested. Only one in three disclosed inventions gets licensed. Fewer than one in 10 corporate sponsored research agreements result in an invention. Therefore only about 1 in 30 results in a technology that is licensable, and even that one may not be desired by the sponsor. So the sponsors have no desire to spend legal costs doing 30 negotiations (or more) for every one that they actually complete. And the sophisticated ones also know that so long as they have the first right, they can get the license for a cost they desire, as usually they are the only entity interested.

06/08/16 @ 17:05
Comment from: ericlkelly [Member]  
Eric

An incredible chance for me and it was heavenly information to view this site. Extremely hard to reveal these helpful page or site. I have numerous gadgets and accomplishing legitimate photo of these worked admirably and vitality keeps on being seeing about this web blog. http://www.clazwork.com

06/13/16 @ 06:59

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

No Comments yet

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