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

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Final Part -- Indemnification, Another Really Hard Problem (Part 3)

June 24th, 2015
Final Part -- Indemnification, Another Really Hard Problem (Part 3)

Last time, we talked about why the risk of patent infringement by the licensed technology should be shared between the licensor and licensee, and we discussed some financial mechanisms that are frequently used when a licensor agrees to patent indemnification liability in order to mitigate the cost of this liability.  In addition to financial provisions, there are also two other mechanisms that should be considered.  

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Part 2 -- Patent Indemnification, Another Really Hard Problem

June 11th, 2015
Part 2 -- Patent Indemnification, Another Really Hard Problem

Last time, we talked about patent indemnification and why this is a really hard issue, especially for the licensor.  This time, we'll address two financial mechanisms that are frequently employed to arrive at a middle ground.

Any accommodation between the parties on this issue should start from the premise that the risk of a patent infringement claim should be a shared risk, not one that is borne solely by the licensor.   If licensing the technology made sense to the licensee in the first place, it is because of the economic value (reward) that the licensed technology creates.  And as with any situation in which there is shared reward, there should also be some element of shared risk.

This element of shared risk/shared reward most frequently ends up being manifested in:

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1 comment

Comment from: Brian [Visitor]  
Brian

I (respectfully) disagree. I think it is both fair and reasonable to expect uncapped indemnification liability when buying a license to software. Selling the software and making sure it is free of problems (virus, infringement, defects, lawsuits, etc.) is the responsibility of the seller / licensor, much like when I buy a toaster, I assume the manufacturer has tested it and made sure it works and I have the right and ability to use it. Here’s a more detailed explanation: https://www.linkedin.com/today/post/article/20140602192923-1102979-what-is-a-cap-on-an-indemnity-clause-and-why-should-i-care?trk=prof-post

07/29/14 @ 13:58

Patent Indemnification: Another Really Hard Problem (Part 1)

May 27th, 2015
Patent Indemnification: Another Really Hard Problem (Part 1)

I've often said that negotiating rights to Improvements is the hardest (non-financial) issue in technology licensing.  But there's another issue that comes in a close second: patent indemnification.

The issue is whether, and to what extent, the licensor of a technology should be responsible if the licensee is sued by a third party alleging that the licensee's practice of the licensed technology infringes the third party's patent.

To understand why this problem is so difficult, it is necessary to think of a technology license as a "hybrid" between an intellectual property license and the sale of goods.  In a "straight" patent license (that is, a patent license where no technology is transferred), the licensor is only granting the licensee the right not to infringe the claims of the patented invention.  Whether other patents may apply to a party practicing that invention is irrelevant; a patent license does not confer freedom to operate.   (As an aside: nothing telegraphs inexperience faster than a licensee or its counsel asking for indemnification  in a straight patent license context).

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4 comments

Comment from: Ed Simpson [Visitor]
Ed Simpson

Good article Larry. For my part I would never ever EVER advise a licensor to accept this type of indemnification, and it would be a deal breaker if the licensee insisted on it. You’ve identified the pertinent risks and they’re just too big. I major on your 3rd bullet as the best reason why it’s an unreasonable ask, and would expect the licensee to do its own freedom to operate due diligence.

07/23/14 @ 04:04
Comment from: Joyce [Visitor]
Joyce

Now me, I would have picked the licensor’s implementation of the technology as the trickiest part. It’s difficult to draft an agreement that says, "We indemnify the technology on paper, but not once it’s in a box that you built."

07/24/14 @ 08:23
Comment from: Gary [Visitor]
Gary

Here is another way of looking at this question from the licensee’s vantage point. If this example involved for example taking advantage of open source or a free transfer of rights, then I understand. When a licensee pays something of value for the rights and the licensor says you are on your own if the right I licensed to you infringes on a third parties rights, that may not be commercially balanced. There are ways to address a situation where the licensee makes changes in the IP or comingles it with some other IP and that action causes the infringement. However, where the licensee is simply using the licensed technology "as is" without making changes and has paid for that right then it seems commercially balanced and appropriate for the licensor to bear some risk in protecting the licensee. Otherwise what the licensor is saying in the context of purchasing goods example you are self insured if something goes wrong. Part of what the licensee is paying for is the peace that I can use the technology with you protecting me if there is an infringement. If the licensee has no indemnity or one subject to a tiny cap, I would factor that in to what I would pay for the right to use the technology and check what alternatives may be available that are more commercially balanced.

07/28/14 @ 14:16
Comment from: Victoria [Visitor]
Victoria

With respect to the last bullet point, even if the licensor has cleared patent for a product, that does not necessarily mean the product will not be subject to an infringement claim nonetheless, for a number of reasons, e.g. continuations, pending claims, someone disagrees with licensor’s noninfringement assessment. This is really a risk allocation issue more than anything else, because not everything is within licensor’s control.

04/19/17 @ 15:10

Assignment and Change of Control Clauses: Gonna be some changes made

May 6th, 2015
Assignment and Change of Control Clauses: Gonna be some changes made

There's a provision in license agreements (and many, many other agreements for that matter) that's often relegated to the "boilerplate" at the end of the document, and it's whether either or both parties can assign their rights under the agreement to third parties.  Sandwiched somewhere between "Severability" and "Entire Agreement", this clause often says simply, "neither party may assign its rights under this Agreement without the other party's consent". 

But this one doesn't belong in the boilerplate.  Particularly in a licensing context, there are potentially serious consequences attached to whether the licensee can or cannot assign.

From a licensor perspective, it wants to be able to control who is practicing its patent or technology, and the terms (financial and otherwise) under which the licensee is doing so.  Just because the licensor is willing to license a startup or small niche player doesn't mean that it would be willing to license its biggest competitor.  Nor does it mean that it would extend the same terms if it did decide to license the competitor.  So the licensor wants to prohibit the licensee from assigning the license or otherwise engaging in any transaction under which a third party acquire rights to the patent/technology.

From a licensee perspective, the ability to assign, at least in connection with an acquisition by a third party, can be absolutely critical.  Particularly with a startup or small company, unless it is one of the fortunate few that are capable of going straight to IPO, its "end game scenario" assumes that it will be acquired at some point.    

So a prudent licensee will ask for the right to assign the agreement in connection with an acquisition of its assets and business to which the licensed patent/technology relate.  But the licensor is frequently unwilling to grant this kind of carte blanche, because it really doesn't solve the licensor's problem when it comes to the identity of the acquirer. 

So what do you do?  Here's a few thoughts:

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1 comment

Comment from: hans111384 [Member]  
Hans

The transfer "by operation of law" issue is very tricky indeed. State merger statutes come into play, but in general I keep this breakdown in mind:
• Assignments:
Asset purchases;
Direct mergers (target merges into acquirer);
Forward triangular mergers (target merges into NewCo, a subsidiary of acquirer)
• Not assignments:
Stock purchases (but this may trigger a “change of control” prohibition, if there is one);
Reverse triangular mergers (NewCo, subsidiary of acquirer, merges into target and target survives as wholly owned subsidiary of acquirer).

The default rule for assignability of IP also goes against usual contract law principles (so all of us IP folks have to educate the non-IP corporate attorneys sometimes).

A non-exclusive patent license is not assignable “unless the patent owner authorizes the assignment or the license itself permits assignment.” This is contrary to typical contract law, but there is a body of federal common law here specific to patent law.

Non-exclusive patent licenses have been interpreted to be specific to the individual licensees—and therefore not freely assignable to others unless authorized by the agreement.:
"On the related question of the transferability of patent licenses, many courts have concluded that federal law must be applied. In so holding, courts generally have acknowledged the need for a uniform national rule that patent licenses are personal and non-transferable in the absence of an agreement authorizing assignment, contrary to the state common law rule that contractual rights are assignable unless forbidden by an agreement."
Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp., 284 F.3d 1323, 1328 (Fed. Cir. 2002) (citations omitted); see also Everex Sys. v. Cadtrak Corp. (In re CFLC, Inc.), 89 F.3d 673, 679-80 (9th Cir. 1996) (“It is well settled that a non-exclusive licensee of a patent has only a personal and not a property interest in the patent and that this personal right cannot be assigned unless the patent owner authorizes the assignment or the license itself permits assignment.”); In re Access Beyond Techs., Inc., 237 B.R. 32, 45 (Bankr. D. Del. 1999) (“The long standing federal rule of law with respect to the assignability of patent license agreements provides that these agreements are personal to the licensee and not assignable unless expressly made so in the agreement.”). This rule is in place partially to prevent “every licensee [from becoming] a potential competitor with the licensor-patent holder in the market for licenses under the patents.” In re CFLC, 89 F.3d at 679. In the absence of the rule, “any license a patent holder granted . . . would be fraught with the danger that the licensee would assign it to the patent holder’s most serious competitor, a party whom the patent holder itself might be absolutely unwilling to license.” Id.

Curiously, the rule for copyright licenses is different!

The two leading cases on copyright licenses are Gardner v. Nike, Inc., 279 F.3d 774 (9th Cir. 2002) and Cincom Sys. v. Novelis Corp., 581 F.3d 431 (6th Cir. 2009).
Both these cases hold that copyright licenses are not assignable in the absence of express authorization (again, federal common law governs questions with respect to the assignability of these licenses):
• The Copyright Act “does not allow a copyright licensee to transfer its rights under an exclusive license, without the consent of the original licensor.” Gardner, 270 F.3d at 780.
• “[I]f the license were silent as to the issue of transfers, federal common law would serve to fill the gap with its default rule that no transfer is allowed without express authorization.” Cincom, 581 F.3d 437, n.4 (citing PPG Indus., Inc. v. Guardian Indus. Corp., 597 F.2d 1090 (6th Cir. 1979)).

05/06/15 @ 13:52

Licensing: What the In-House Generalist and Business Lawyer Need to Know

April 14th, 2015
Licensing: What the In-House Generalist and Business Lawyer Need to Know

Here's a link to a webinar presentation I recently gave entitled "What the In-House Generalist and the Business Lawyer Need to Know About Licensing":


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