An

IPR Project

Dealing on following points

1. “Arbitration may be used to resolve licensing and intellectual property disputes involving patents, trademarks, and copyrights.”

2. What are the common licensing issues that arise in intellectual property disputes?

3. How would you advise someone who is framing an IP licensing contract, as to which clauses to incorporate in the agreement?

4. Please also make a draft Intellectual Property Licensing Agreement with the relevant clauses.

Submitted To:

THE ENHELION INSTITUE

(In collaboration with Gujarat National Law University)

Submitted By:

SHIVANGI SINGH

August 2013-1024 Batch

TABLE OF CONTENTS

List of Abbreviations 031. Introduction

1.1) Brief Contemplation of Intellectual Property Rights (IPR) 04a.) History of IPRb.) Kinds of IPR

1.2) Commercialisation of Intellectual Property and its Importance 052. Licensing of Intellectual Property: A Lucrative Step

2.1) Scope of Licensing Agreements in different jurisdictions 06-083. Common Licensing Issues involved in IP Disputes 09-104. How to best frame an IP licensing agreement: Clauses to be inserted

4.1) Parties concerned 114.2) Recitals 114.3) Definitions 124.4) Grant Clause 12-15

4.4.1) Types of licenses4.4.2) Scope of rights authorised by and restrictions on grant4.4.3) Sub-licensing

4.5) Payments and Compensation 164.5.1) Mode & Currency of payment4.5.2) Royalties; how calculated4.5.3) Reports and Audits

4.6) Obligations of the parties 16-174.6.1) Non-Disclosure Agreement4.6.2) Exploitation of intellectual property rights granted

4.7) Risk alleviation 18-194.7.1) Improvements4.7.2) Due diligence4.7.3) Warranties

4.8) Term, Expiration and Renewal of Agreement 20-214.8.1) Termination of licensing agreement4.8.2) Effect of termination

4.9) Dispute Resolution 21-234.9.1) Escalation4.9.2) Mediation and Arbitration; a better recourse4.9.3) Litigation

4.10) Miscellaneous 245. A sample Trade Mark Licensing Agreement 25-296. Conclusion 307. Selected Bibliography 30

LIST OF ABBREVIATIONS

1. IPR : Intellectual Property Right

2. IP : Intellectual Property

3. UN : United Nations

4. WTO : World Trade Organisation

5. WIPO : World Intellectual Property Organisation

6. TRIPS : Trade Related Aspects of Intellectual Property Rights

7. Arts : Articles

8. U/S. : Under Section

9. NDA : Non-Disclosure Agreement

10. P/A : Per annum

11. Pvt. : Private

12. Ltd. : Limited

13. Co. : Company

14. No. : Number

15. Ed. : Edition

16. DSB : Dispute Settlement Body

1.) INTRODUCTION :

1.1) Brief Contemplation of Intellectual Property Rights (IPR):

a. History of Intellectual property (IP) ; an intangible form of property fundamentally refers to the

[creations of the mind, such as inventions; original literary and artistic works; unique designs,

unique symbols, names and images used in commerce etc]1. But the evolution of the concept of

copyright and patent can be traced back to The British Statute of Anne’1710 of the Statute of

Monopolies’1623. Although modern usage of the term goes back to 1867 with the founding of

the “North German Confederation” which granted legislative power over the protection of

intellectual property. Later with mergence of the administrative secretariats established by

“the Paris Convention, 1883” and “the Berne Convention, 1886” in 1893, the term intellectual

property was adopted in its new combined title, the United International Bureaux for the

Protection of Intellectual Property. The organization subsequently relocated to Geneva in

1960, and was succeeded in 1967 with the establishment of the World Intellectual Property

Organization (WIPO) by a treaty as an agent of UN.

b. Kinds of Intellectual Property : It was, however with the passing of Trade Related Aspects of

Intellectual Property Rights(TRIPS) Agreement of WTO, the IPR attained the authority to

enforce the law internationally. According to TRIPS en Masse intellectual property includes:

“Trademark, Copyright, Patent, Industrial Design, Geographical Indications, Lay-out of

Integrated Circuits and Protection of undisclosed Information.” It was later on that “computer

software” and “new variety of plants breed” are also considered as IP. However, unlike other

valuable assets the IP owners are granted certain exclusive rights to a variety of intangible

assets such as; musical, literary, and artistic works (under Copyright); discoveries and

inventions (under Patent); symbols, and designs ( under Trademark and Industrial design laws).

Conjointly as an emerging concept, most developed economies today have legal measures in place,

to protect these IP Rights and in a way to enable people to earn recognition or financial benefit from

what they invent. As it’s an affirmed fact that although many forms of IP can’t be listed on the

balance sheet as assets, the value of such property tends to be reflected in the price of the stock.

Thereby the high value of IPR in today’s increasing knowledge-based economy is explicit.

1.2) Commercialisation of Intellectual Properties and its importance:

1 http://www.wipo.int/about-ip/en/

Commercialisation resembling its general meaning, here too denotes the process of introducing a

new product i.e. intellectual property like trademark, plant variety etc. or a new production method

e.g. process patent into the market in order to get business returns and profits. However, the financial

success of any IP commercialisation also depends on few key aspects like:

The form of Intellectual Property (most importantly)

Time of introduction; potential demise of sales of vendors other products, unfavourable market

conditions etc. might result in delay of introduction up to an extent.

`Place(s) where to launch; it might cover limited attractive cities, or in one’s own nation only, or

may be both in national and international market etc.

The Economic Resources at its disposal.

These were few of the ‘factors’ to be determined before launching, to effectively commercialise an

IP. Indeed few “common practices of IP commercialisation” includes:2

i) Internal Product Development.

ii) IP Assignment.

iii) Knowledge transfer through: (a) Licenses, (b)Joint Ventures and Spin-off, (c) Franchising, (d)

Material Transfer Agreements.

Thus it’s evident now that intellectual property rights somewhat resembling other propriety rights

also originate with a commercial entity and the owners retains the rights throughout their lifetimes as

legal leverage against competitors. But this is the most predictable scheme; think of a scenario where

the IP owner is a huge business entity and the property being worth billion dollars. In such state of

affairs, these huge companies do all they can to extract maximum value as possible from their IP and

prevent others from deriving value from it.

Now, many a time’s circumstances may arise when the owner gets interested in starting a new

business, expanding an existing business (extending the territory or the nature of business) or

improving the quality of the goods or service of his SME and thereby its market position. Per

Contra, there may be times when an owner may want to transfer some or all of its IP but, an outright

sale is not an attractive option; as in case of owner being a non-practicing entity (NPE). This is the

2 http://www.iprhelpdesk.eu/commercialisation

notch where enters the transactions that pertain at least in part to intellectual property rights which

mainly involves either an “assignment” or a “licence” as tools to commercialise the IP.

2.) LICENSING OF INTELLECTUAL PROPERTY : A LUCRATIVE STEP

As discussed above there can be various ways of commercialising an IP. Well the most prevalent and

profit making way is by sharing an IP Right with other. Nonetheless to pace with today’s Wall

Street; licensing, as opposed to complete transfer or assignment of IP, provides the owner with

several advantages. For a better understanding we first, shall, look into the definitions of especially

these two kinds of transfer which are as under:

Assigning:    [Selling or completely transferring your IP rights to another person. Once you assign

your IP rights, you can no longer control the registered IP; the assignee will have this control.

Licensing:     An agreement that allows the licensee to use the Intellectual Property owned by the

licensor, under the specific conditions of the agreement.  In this case, the licensor still owns the

intellectual property and therefore maintains control. The agreement will often require the

licensee to pay a royalty or fee for the permission to use the intellectual property.]3

Thus through an assignment the owner out rightly conveys, sale and transfer ‘the property interest

and title’ in the specific intellectual property rights. Once intellectual property rights are assigned,

the assignee (the equivalent of a purchaser) owns all the interest and title in the assigned IP rights.

However, in rarest cases the assignment may be subject to certain restrictions limiting the scope of

rights that are being transferred, provided it has been expressly specified in the assignment

agreement.

In contrast, a licensing agreement is merely a partnership between an intellectual property rights

owner (i.e. the licensor) and another who is authorized to use such rights (i.e. the licensee) to

use/exploit the intellectual property rights in a manner that the owner would have the legal right to

prevent, in exchange for an agreed payment (i.e. called the fee or royalty).’ Hence, there is no

transfer of any property interest or title in the intellectual property rights from the licensor to the

licensee. Licensing can thus provide an owner with a great deal of flexibility when dealing with third

parties while at the same time maintaining overall ownership of the intellectual property rights. In a 3 http://www.completeip.com.au/Assigning_and_licensing_IP.php

licence, the permission granted by the owner to the licensee is conditional upon the licensee

conforming to the terms of the licence.

2.1) Scope of Licensing Agreement in different jurisdictions:

The scope of the licence howbeit can be tacit from different angles. In practice, a “variety of

licensing agreements” are available, which may be broadly categorized as follows:

Technology License Agreement; all the intellectual rights protecting a given technology or

product are licensed (e.g. license to use and market a diagnostic kit).

Trademark Licensing and Franchising Agreement and Copyright License Agreement; only an

intellectual property right is licensed (e.g. a licence to use a patent or a trade mark licence).

A common example of an IP licence is “the one you receive whenever you buy a copy of software to

use in your business.”

All or some of these agreements often form part of one single contract since; in transfers of this

nature many rights are involved. Such contracts will provide your SME, either as a licensor or

licensee, a wide variety of possibilities in conducting business in your own country or elsewhere. As

(a licensor), your SME can expand its business to the frontiers of your partners' business and ensure

a steady stream of additional income. As (a licensee), your SME can manufacture, sell, import,

export, distribute and market various goods or services which it may be prevented from doing

otherwise.

In the international context, however, a formal licensing agreement is possible only if the IPR

you wish to license is also protected in the other country of interest too. Licensing at par you also

would have no legal right to put any restriction on its use by anyone else.

In International Scenario: Thus, as got clear from above IPR although being a private right, needed a

multilateral framework of principles, rules and disciplines to strongly survive in the era of

globalisation. With this objective PART-II of TRIPS was incorporated explaining the scope and use

of IPR as under:

Copyright and related rights: Arts. 9-14

Trade Marks: Arts. 15-21

Geographical Indications: Arts. 22-24

Industrial Designs: Arts. 25 & 26

Patent: Arts. 27-34

Lay-out of Integrated Circuits: Arts. 35-38

Protection of undisclosed Information: Arts. 39

Further, [Article 40 of Section 8 of Part-II] covers the “powers of the member countries to control

the misuse of license privileges of multinationals.”

In India: India being a member country of TRIPS is bound to implement the laws for protection of IP

as provided by different conventions, mutatis mutandis. Thus implementing the same Indian

legislature has enacted various separate acts each providing for protection of specific kind of

intellectual property. Furthermore each of these includes provisions providing for licensing of IP too

like:

a) Under [S/70] of “The Patents Act 1970”; the patentee has a right to license his patented

invention with the only limitation on this is in the nature of ‘compulsory licensing ’ under

special circumstances. Under this section, any person can make an application for grant of a

compulsory licence for a patent after three years, from the date of grant of that patent, on any

of the following grounds:

a) The reasonable requirements of the public with respect to the patented invention have not been satisfied;

b) The patented invention is not available to the public at a reasonably affordable price.c) The patented invention has not worked in the territory of India.

b) Under “The Trademarks Act 1999”; A License needs to be in writing and the licensee of a

trademark will enjoy the same rights as that enjoyed by a registered trademark proprietor.

The Trademark Act also recognizes non-registered licensed use provided that the proprietor

has licensed the right in a written agreement and all conditions of that agreement are met by

the user. The registered user can institute infringement proceedings in certain circumstances,

while the unregistered permitted user does not have this power under the Trademark Act.

c) Under [S/30] of “The Copyright Act 1957” and [Rule 6-11] of “Copyright rules,1958”; the

owner of a copyright in any existing work or the prospective owner of the copyright in any

future work, may grant any interest in the right, by License in writing, signed by him or by

his duly authorized agent. The Copyright Board is empowered to grant compulsory licenses

under following circumstances on suitable terms and conditions in respect of 'Indian work':

a) The work must have been published or performed in public;

b) The author must have refused to republish or allow the republication of the work or must

have refused to allow the performance in public, that by reason of such refusal the work

is withheld from the public;

c) The author must have refused to allow communication to the public by broadcast, of

such work or in the case of a sound recording the work recorded in such sound recording,

on terms which the complainant considers reasonable.

3.) COMMON LICENSING ISSUES INVOLVED IN IP DISPUTES:

For a better understanding of the general problems that arises in IP licensing, one should first be

aware of the common intellectual property issues, especially in context of Indian Scenario like:

a) Nature of Intellectual property: With the availability of diverse kinds of intellectual property

available in the market, all providing for different rights, governed under different statutes,

having different requirements makes it difficult for most of the people to discriminate

between the kinds of IP they have invented.

b) Lack of Awareness: Further, illiteracy, poor public awareness and intellectual property still

being an emerging concept in India many a times results in very less registration of

inventions on our part giving foreigners on the other hand an opening to come here and

registered the inventions in their names.

Also because of lack of knowledge and accessibility many a times people

unknowingly keeps on selling a product under a brand name that is already registered and

thud leads to infringement.

c) Legal Issues: In case of a layman desiring to register his creation of mind definitely is

supposed to go through a number of legal formalities that generally is out of his common

understanding. Apart even after applying for registration there’s a possibility of leaking of

confidentiality, infringement of others IP etc. that he has to resist.

d) Financial Matters: Excluding layman, when it comes to registration of IP of a big renowned

business entity, still there’s always connected a potential risk of counterclaims even from

other nationalities adversely affecting the goodwill as well as financial status of such

multinationals.

Now, when it comes to negotiating a licence agreement, which holds a crucial position in law of

intellectual property in present time; it is vital for licensor to understand why he wishes to license his

intellectual property and for licensee to understand why he wish to become a licensee, as well as the

potential risks of entering in such deal so as to gain the maximum profits out of their IP’s. Here is a

list of few basic issues that arises in relation to a licensing agreement:

1) Payments: The very first and most common challenges is to fix the appropriate ‘Royalties’

and ‘Compensation’ to be paid by the licensee. Because in many cases the calculations being

so irrational results in licensee become too burdensome which finally results in collapse of

complete business.

2) Ownership: If there exist a defective ownership of licensor the licensed IP may be challenged

at any time and the whole technology may become obsolete.

3) Capability of the Organization: If the licensee is unskilled, not well equipped, or doesn’t have

perfect market exposure etc. to reasonably exploit the technology are few crucial faces that

might result in deteriorating statistics for the licensor. Thus it’s necessary to do proper due

diligence before entering into licensing agreements.

4) Control on Information: This is a common issue that might arise in case of grant of exclusive

licenses, as much similar to assignment many a times licensor over grants the rights to the

licensee ensuing control lost over the information; which may also result in licensee

becoming the competitor in the market.

5) Third party Infringement: This is the most vulnerable issue that arises in licensing cases. It

might result in because of ‘lack of specifity’ or ‘improper grant language’ as to the

indemnity provided against any third party infringement or in relation to the grant of all rights

in relation to use of IP etc.

Consequently it is crystal clear now that Intellectual property licenses can be amongst a company's

most important business agreements. Failing to have a good understanding of the underlying rights

being licensed can put the licensed property at risk and thus results in agreements that do not fully

reflect the needs of the parties. Thus it becomes imperative that extent of the licence may, and in fact

should, be restricted by a number of provisions, which we will read in detail in the coming pages.

4.) HOW TO BEST FRAME AN AGREEMENT TO PREVENT MOST OF THE

FUTURE EXERTIONS: (Which Clauses to insert in IP licensing agreement)

Every License Agreement should contain a proper framework – ‘a carcass’ to shield the rights and

liabilities enumerated inside the agreement. As these form the spine .it’s imperative that an

exemplary IP license will specify each and every clause of it in a logical fashion so as to articulate

the intentions of the licensor to his best as well as to avoid any irksome contradiction in the future.

Albeit many a times these skeletal elements are scattered throughout the Agreement and, due to

awkward drafting, can be difficult to find. Thus one shall draft a licence agreement in following line

of attack:

(1) Parties Concerned; (2) Recitals; (3) Definitions; (4) Grant of License; (5) Payments and

Compensation; (6) Obligations of the Parties; (7) Risk Alleviation; (8) Termination and Renewal; (9)

Dispute Resolution; (10) Miscellaneous.

Each one of the above, however, can be explicated as herein under:

4.1) PARTIES CONCERNED –

The full legal names of the parties who will be bound by the agreement (i.e. of the licensor and the

licensee) must be clearly identified. Additionally few more details, including

the addresses for each of the parties,

the jurisdiction of incorporation (for corporate entities) and

the effective date of the Agreement,

may also be included in the identification section of the Agreement.

Only the parties that actually sign the Agreement will be legally bound to its provisions; if there is

some concern about a “shell” corporation being the only one responsible to fulfil obligations or

provide indemnities, it may be worth considering adding the parent company to the Agreement as a

guarantor.

4.2) RECITALS-

This is the part of the agreement which states the background of the agreement, story of the parties

and their relationship, as well as the reasons of parties for entering into the agreement. For example,

if the parties are entering into a license agreement as part of a settlement to an infringement action,

it’s in the recitals that the sequence of events leading up to the settlement could be laid down.

Properly drafted recitals can be very useful tools in explaining the context and background of

the license to a reader and thus, can also a court or an arbitrator to interpret the licence agreement in

a potential dispute.

4.3) DEFINITIONS-

The definition clause, also be termed as glossary of the whole licensing agreement. Like any other

statute the inclusion of interpretation clause is to provide the agreement a level of consistency and

clarity as related to words, phrases used in the agreement plus it’s an edict to that the meaning of a

term specifically defined in the Agreement, will take precedence over any other regular meaning for

the same.

It usually starts with the words, “In this Agreement, the following words and expressions shall have

the following meanings:” Nonetheless, few of fundamental definitions that every agreement must

have are:

a) Licensed Intellectual Property : as the term is self-explanatory, it makes clear the kind

of IP licensed i.e. whether Patent, Copyright or any

other;

b) Use: it makes clear the extent to which party can enjoy the rights inherent within the

property as well as obligations they are supposed to discharge.

c) Royalty/Revenue: it spells out the amount that, the licensee is obliged to pay to the licensor

as a consideration for getting license.

d) Confidential Information

e) Territory

f) Net Sales

g) Know-How; is often defined in a few lines and described in detail in separate documentation.

Hence it’s clear that an agreement being a composite document includes a list of definitions, with

main job of assisting the reader in interpretation of the document. Further these also, although in a

narrower spectrum, have an impact on the ‘scope’ of the license by providing the base for construal

of the most important clause i.e. ‘The Grant Clause’. As an instance it’s in provided the definition of

“use” that clearly set out the limits on the licensee’s rights. Similarly, the definition of “revenue” or

“royalty” may impact the amounts of royalties to be paid to the licensor.

4.4) GRANT CLAUSE-

This is the nucleus of an IP License. It plays the most vital role in an agreement as it specifies “who

gets what” i.e. the rights of the use and the limitations thereupon. In other words it’s decisive, for it

in length explains the ‘Actual License’s Scope.’ Well with having ‘grant of rights’ at the core of this

clause there are few other important features also that crafts the grant clause to its entirety . These

are:

4.4.1) Types of licenses:

It’s under this clause only that the licensor should clearly indicate the kind of license he’s granting,

and thus consequently explaining the scope of license. Generally there are three types of licenses:

1) Exclusive License : Only the ‘licensee’ is authorised to use the license. Having its basis in the

word “exclude”, it’s significant that such license excludes everyone else (including the

licensor himself) from using the property except by him. In its first look it seems almost

identical to an assignment but practically is slightly different from the point of licensor

retaining only the ownership as is different from assignment. The broadest scope of license

that can be granted is an "exclusive" license.

2) Sole License : Only ‘the licensee’ and ‘the licensor’ can use the licensed intellectual property

or technology. It means although the licensor through such license retains the right to use the

IP along with the licensee, he is prevented from further licensing to anyone else.

3) Non-Exclusive License : the licensee and the licensor can both use the licensed intellectual

property or technology. But here the licensor is also allowed to negotiate further the non-

exclusive licence with as many licensees as he desires.. Most commercial software licensed

today is licensed on a non-exclusive basis

[NOTE: Care must be exercised by the licensor that the grant clause does not grant "all right, title

and interest in and to the intellectual property" to the licensee. Such a clause would constitute an

"assignment" of the intellectual property rights making the purported licensee the new owner of these

rights, even to the exclusion of the purported licensor.]

4.4.2) Scope of rights authorised and restrictions on grant:

Preferably one shouldn’t confuse the type of license granted with the ‘rights’ granted by the license,

as the scope of the actual grant depends either on the “type of intellectual property licensed” or on

“the commercial deal” struck by the parties.

For instance, a copyright holder has the exclusive rights to:

copy the work (i.e. reproduction),

issue copies of it to the public (i.e. distribution),

rent and lend it,

perform or show the work in public,

communicate it to the public and

make adaptations,

but it’s not necessary that grant of an exclusive license should mirror the grant of all these rights to

the licensee, the reason being practically the parties are free to decide whether to grant all or less

than the full range of rights that were afforded to the owner of the intellectual property by any law.

Normally, the margin of grant clause can be understood by a brief understanding of its ingredients

which not only specifies what grant provides for but also specify what grants doesn’t includes as

“restrictions”. Few of it may be:

1) Nature of IP : It’s imperative as it dictates the rights capable of being transferred; for it’s

based on the principle of ‘nemo dat quo non habet’ (i.e. one can’t transfer a better title than

he himself has). Therefore the nature of rights granted to the licensee is limited to the extent

of rights the licensor is authorised to enjoy. For example:

A Trademark owner can transfer by way of grant any or all of the rights to use and

apply the Trade Mark[s] on and in relation to the [Goods/Services], in connection

with the [development/use/manufacture/ marketing/distribution/sale/disposal] of the

[Goods/Services] only.

A Patent owner can transfer any or all of the rights to manufacture, use and sell

Licensed Product only.4

2) Field of Use: Inclusion of this part is to limit the grant in relation to its applicability of rights.

Take for example, if a drug patent holder has been granted right to use his product for several

therapeutic indications, it’s this field only which will explain, whether the licensee got

4 http://www.ipo.gov.uk/licensingbooklet.pdf

entitled to exploit the product for treatment of any or all of the indications, or for the sole

purpose of research in a specified field etc.

3) Territory: Territorial limitations as the name suggests limits the enjoyment of rights to a

specified area. The territorial limitation although being very common, is predominant in the

trade-mark licenses where different distribution partners may be granted exclusivity for their

regions. The territory of use may extent “world-wide” or even be limited to a particular

province or region.5

4) Release : This is a conditional part depending on a license being entered into as part of a

settlement to infringement proceedings. Although it’s a basic norm that the licensee rights are

conditional upon his compliance with the obligations, it’s exemplary in a release type grant to

specify that there’s a release against infringement that was alleged to occur prior to the date

of the Agreement. And this would likely only apply where specific consideration for the

release has not been provided.6

4.4.3) Sublicensing:

It has to be provided in the grant provision only a right to sublicense in addition to other rights of

licensee. It’s is a vital issue that must be agreed upon parties concern as there are an assortment of

reasons in favour of sublicensing. Few of the frequent rationale can be:

It might serve as an additional source of income. As an example, in case the licensee himself

is not capable of extending the business to the whole of territory permitted under the grant.

There might be a possibility that the partner of the licensee, which in this case be a corporate

group, is in a better position to utilize the privileges.

Besides, there could be few other important points as well that must be clearly discussed in a

sublicense agreement, like:

Is the licensee free to select the sub-licensee(s)? No a condition restraining or limiting him

from sublicensing to a particular class can be made.

Shall determined conditions be instituted? Habitually it’s clearly directed in the licensing

agreement that the sublicense agreement should institute on as far as possible on the same

terms and conditions as set out in licensing agreement. In this way the licensor is able to

control the sub-licensee use of IP even though no direct contractual relation exists between

5 http://www.iprhelpdesk.eu/commercialisation6 http://www.iprhelpdesk.eu/node/1623

the licensor and the sub-licensee. Further provisions related to person authorised to receive

payments are also made.

4.5) PAYMENTS AND CONSIDERATION-

Licensing in essence being a breed of contract must have the clause resembling ‘consideration’. Thus

in IP license agreement the consideration brought out by the licensor is chiefly “the right to use the

IP” and by the licensee is usually “payment of fee” in lieu of granted license. Once the IP valuation

is premeditated by both the parties, further matter that might be decided are:

4.5.1) Mode and Currency of Payment:

Most commonly these agreements entail a determined payment of lump sum amount at the beginning

only which is generally called an “initial license fee” or an “upfront license fee”. In few cases this

might act as the sole consideration paid, as in case of fully paid-up license. But customarily these are

followed by continuing payments, sometimes called as “royalty.”

Along with the amount specified to be paid it is also important to describe the currency of

the payment as well as exchange rates, especially where the licensor and the licensee are based in

different countries with different currencies so as to avoid any potential inconsistencies.

4.5.2) Royalties; How Calculated:

The payment of royalty may be calculated on the basis on seller’s performance, i.e. it may either

depend on percentage of sales, profits made or on a per-unit basis. It’s further important to mention

here only if there are any deductions to be made like taxes, rebates, delivery expenses, allowances,

etc. Further, the license can also require ‘minimum annual royalties’ or ‘minimum annual product

sales’ and reports on the same to ensure the licensee is diligently marketing the services and making

accurate royalty payments.7

[NOTE: Fixing the dates when royalties are due is essential in order to avoid any uncertainty.]

4.6) OBLIGATIONS OF THE PARTIES-

As it’s evident from the ongoing facts that licensing agreements are usually long term business

partnerships between the licensor and the licensee, with a continuous interaction for profitable use of

IP. It is therefore significant to start the relationship with preparatory agreements describing few

7 http://www.ipo.gov.uk/licensingbooklet.pdf

additional obligations save for those we have already discussed above. Often obligations differ

depending on the nature of intellectual property licensed. These can be:

4.6.1) Non-Disclosure Agreements (NDA):

In cases of agreements with contemplation over the licensor to offer assistance to the licensee in

exploiting the rights granted, the licensor may perhaps enter into a Non-disclosure agreement, i.e. a

legally binding contract where one party is obliged to disclose information in confidence to the other

party within a certain amount of time. Assistance could consist of all types of information, from

ideas, research, know-how to the descriptions of inventions, training or any other technical support

agreed upon in the NDA.

The common characteristic though is that the disclosed information is valuable for the

disclosing party to the extent that it must be kept away from the public domain.

4.6.2) Exploitation of Intellectual property rights:

There are few important points that must be clearly set forth in the agreement withal the specified

rights granted like

i. Registration:

Who will be take the responsibility of maintenance of registered intellectual property rights?

Which party will be responsible for the payment of registration fees? Although in normal

circumstances the licensor is obliged to take the responsibilities, he may be reimbursed for

fees in few cases, like if the licensee is enjoying exclusive rights on IP.

ii. Infringement:

Fundamentally the licensee being at a better position to be aware of third parties infringing the

licensors right is under obligation to swiftly inform the licensor about any such in

infringement.

Who will incur the costs of proceeding against the infringers? Such right can either retains

with the licensor exclusively, or another scenario may contemplate both the licensor and

licensee taking action, or the licensee solely taking the accountability.

However, there is always a risk in allowing a licensee to proceed unilaterally as it’s

predictable that he may do a less adequate job of defending the property that will leave

adverse grades to the licensor.

[NOTE: It is important to note that if the Agreement is silent on the subject of third party

infringements, a licensee (even of a non-exclusive license) has the ability and standing to maintain an

action for patent infringement to recover its damages]8.

iii. Covenant to exploit:

It’s very important to include clauses compelling the licensee to exploit the granted property in

the “best and reasonable commercial manner”, so as to evade to its maximum any loss that the

licensor might suffer because of his dependability on a variable royalty that lies in the hands of

licensee.

4.7) RISK ALLEVIATION-

While licensing at its core being a profit generating activity, it’s vital on part of both the parties to

the agreement to anticipate the prospective risks involved and means to cope up with the same. In

regards to the same there are two main provisions to look into:

4.7.1) Improvements:

Law of intellectual property is fundamentally framed to protect the expressions generated out of

human minds that can be implemented. These ideas many a times comes out as a modification in any

existing technology as well. For instance, once a person gets the patent over a new technology of

bike that he licenses to a particular company of motorbikes only to exploit. Does it exclude either

him or the licensee from making any further improvements in the invented technology further?

Undoubtedly ‘NO’ is the answer.

In fact there is always a scope on part of both parties to develop the IP and filing new

registrations. But if licensee seeks to d any such adaption’s he must be authorised so prior in the

agreement itself, otherwise it will result in the ‘breach of agreement’. It is therefore in the best

interest of each party to discuss and agree on this matter in the agreement explicitly.

4.7.2) Due Diligence:

Licensing Agreements are complex documents with both parties interests kept at stake. In such a

situation it’s necessary for both parties to engage in due diligence activities, so as to mitigate the risk

to an extent though not completely. This might include:

1. Licensor’s Diligence:

8 www.iphandbook.org/handbook

Very firstly he must analyse the capability of the Licensee as to whether he can profitably

exploit the IP or not.

Secondly, putting obligations like ‘of best and reasonable use’, ‘fixing a minimum

royalty’, ‘deadline fixed for achieving milestones’ etc. could be proved as an assurance of

at least beneficial endeavours by the licensee in utilizing the IP.

Thirdly, he can further insert a clause of “warranties” as a corresponding tool in addition

to above mentioned provisos as none of the diligence activities provides for cent percent

elimination of risks.

2. Licensee Diligence:

What a licensee possibly shall look to is the Number of Rights he is authorised with.

The Scope and extent of such rights.

The royalties, compensations and other monetary liabilities of his towards the licensor.

4.7.3)Warranties:

As discussed above notwithstanding the due diligence activities both the parties asks for certain

warranties from each other as prevention from any future damages that they might suffer because of

any fault on other parties side. Thus like all commercial contracts, apart from general representations

made in the licensing agreements the parties may also ask for following warranties varying to a

length depending on either the type of intellectual property or the negotiating power of each party:

1. Ownership: This is the worst fear of a licensee i.e. he might be paying royalty for an IP which

his competitors can also exploit for free because of defective or invalid title of the licensor

over that IP. Thus to prevent this scenario the licensee may ask the licensor to warrant his

ownership being valid, free and clear of all encumbrances.

2. Third Party Infringement: Here the licensee to get shielded by any future infringement

proceedings might ask the licensor to warrant that the use by licensee of the licensed property

doesn’t infringe any third party IP rights.

3. Adequacy and performance: The licensor may be asked to warrant that all of intellectual

property necessary for performance of the rights granted are licensed to the licensee, so as to

avoid payment of additional considerations afterwards for additional IPs that the licensor

didn’t disclosed previously.

4.8) TERM, EXPIRATION AND RENEWAL OF AGREEMENT-

As necessary for any other contract, there must be mentioned a clear date from which the agreement

intends to commence, the duration till which the agreement remains in force and the date of its

expiration, except in case of perpetual agreements.

Further the parties may insert a renewal clause at the beginning itself or even negotiate it at any stage

on a notice of his intent to do so served by the licensee to the licensor before expiration, so as to shun

renegotiating the terms and conditions.

4.8.1)Termination of agreement:

Firstly it’s important to note that termination can take place in two different ways:

1. Termination for convenience : In this kind the party with the right to terminate is at will to end

up the agreement at any point of time irrespective of the expiration date or any cause,

provided an adequate notice has been served to the other party.

2. Termination for cause : This generally encompasses the events triggering the termination. It

might depend on the type of IP as well as the aspirations of parties. But the most common

one is “on material breach of terms of the agreement” Well serving of notices prior to the

termination is a condition not binding until it has been clearly mentioned in the agreement.

Few other general events may include:

The licensees’ right to terminate on invalidity of licensed intellectual property.

Similarly the licensees right to terminate in case of third party claim for infringement.

Immediate termination on Insolvency of the other party. However this is a murky

legal area and it is might possible that no direct termination but a stay may be applied

to maintain the business. Thus such provision must be drafted carefully if

enforceability is crucial.

4.8.3) Effect of Termination:

A well-drafted IP license agreement usually provides for the effects of termination also, so as to

escape any further conflicts between the parties. The most pressing concerns might include9:

The discontinuance of licensee to exploit the intellectual property as early as possible.

9 www.iphandbook.org/handbook

Submission of any or all of the materials containing licensed know-how or by the

licensee to the licensor.

Return or destruction of all confidential information.

The terms and conditions or any obligation that are intended to survive termination,

(for example, the payment of royalties accrued to the date of termination shall

continue until they have been fulfilled.)

4.9) DISPUTE RESOLUTION-

Intellectual Property license being such a complex though popular document in itself, it’s impossible

to expect any relationship between the two parties to break down irrevocably. Even it’s evident that

there arise disputes between the most rationale people in business world. For this reason only it’s

very crucial to incorporate a separate provision for resolution of any dispute arising relevant to any

of the matters provided in the agreement.

Now as it’s apparent that there are a number of ways through which a dispute can be

resolved. Thus, like any contract it’s completely up to the parties to decide which method to go for.

4.9.1)Escalation:

This is somewhat a kind of informal proceeding, generally opted by the parties to evade the expenses

of more formal proceedings as well as to ensure that all attempts have been made to resolve the

dispute informally before approaching the formal one. Like any other escalator clause in any

contract, here it specifies the hierarchy from lower to increasingly superior levels of management, to

whom the dispute shall be escalated. It further specifies the form of notice required, procedure to be

followed plus time and place where parties should meet to find a solution.

4.9.2)Mediation and Arbitration; a better recourse:

If escalation will not work out as an attempt to priory sort out the matter then the only best option

available is a more formal dispute resolution mechanism i.e. “arbitration.” There are a number of

reasons for which arbitration presently stood as the best option for resolution of disputes especially

in intellectual property and licensing matters.

Very firstly and basically to save the time from lengthy court proceedings and heavy spending as

required in court fees and else, the parties may wish to opt for either mediation or arbitration, as

licensing at its nub being a commercial activity any such hindrances in judgement will result in

huge losses as adjacent to its central goal of profit making.

Secondly, the element of ‘binding force’ especially in case of arbitration, as against escalation,

mediation or conciliation, in whose favour the decision is passed makes it better than any of it. As

an instance in India the decision of the arbitrator being equivalent to “decree of court” and being

“final & conclusive” is legally binding on both the parties to arbitration under Arbitration and

conciliation act, 1956.

Thirdly, introduction of various kinds of arbitration methodologies has emerged as a boon in

commercial market, as unlike formal litigation being restricted to the jurisdiction of its nation, the

“Foreign Arbitration” & “International Arbitration” both provides for ways to resolve disputes

between parties even when both resides in different countries or being governed by different laws.

The only thing required is that it must be clearly mentioned it in the agreement, by provisions of

which law and rules the parties seek to be governed (e.g. International Chamber of Commerce,

Ontario Arbitrations Act, etc.). Further, the parties may also specify the location of the arbitration

in advance. It is frequent to choose a “mutually inconvenient” location, so that neither party is

tempted to commence proceedings with a cost advantage over the other party. 10

Fourthly, comes the factor of specialisation. As an example in case of “Institutional Arbitration”

parties are free to choose the institution through which they aspire to resolve the matter, like in

case of IPR issues the parties may put a clause in agreement of resolving the matters at WIPO or

WTO only. Here these institutions being masters in their fields can provide for far better

assistance than anyone else.

Apart from these common benefits of arbitration over other modes, there are at par other benefits

in technical sense too. As once the parties fix on arbitration the parties are supposed to insert few

of the particulars in arbitration clause, which in itself are evident of advantage of arbitration over

others. Some of these basic particulars may include:

1. Number of arbitrators : This is a plus point clause in favour of the licensor as he can grant

the license only on a condition that any dispute shall go to the sole arbitrator appointed by

the licensor. Well apart from this in general either a single arbitrator or a panel of odd

10 http://www.nutter.com/The-ABCs-of-Licensing-Intellectual-Property-04-01-2010

numbered arbitrators to be appointed according to the applied law are commonly

contemplated.

2. Qualification of arbitrators : This is another benefit of arbitration over litigation as here the

parties may specify an arbitrator to have “specific qualifications”. As in case of license of

a cinematographic copyright, the parties may specify that the arbitrator(s) be an expertise

in media law.

3. Confidentiality : This provision again diverging from normal procedure provides for

confidentiality of all the information disclosed during the course of the arbitration. This is

proved very crucial as in cases of trade secrets where disclosure might result in massive

loss to the licensor.

4. Costs : It might be specifically mentioned in the agreement itself if parties negotiating

desires the cost of arbitration to be allocated or not.

5. Final Award : By insertion of this clause, the very indisputable right of appeal as in normal

courts can be forbidden, if both the parties voluntarily agrees to bind each other by the

decision of the arbitrator(s) with no appeal allowed to the court.

[NOTE: One of the benefits of using mediation, arbitration or other alternative dispute resolution

procedures is that the parties may tailor a dispute resolution mechanism to their needs taking into

account the importance of the technology and the extent to which they are prepared to go in

resolving disputes.]11

4.9.3) Litigation:

Even if the arbitration clause is missing in an agreement, there is always an option to the parties to

resolve the matter through the same provided by mutual consent of both. But what if a party doesn’t

want to resolve it through any of the abovementioned procedures in any case. The last resort that is

always available is through “Litigation.”.

4.10) MISCELLANEOUS-

Licensing agreements, being a class of commercial contract is also governed by the principles of

contract law and thus embraces standard “boilerplate” clauses of contract like:

4.10.1) Indemnification:11 http://www.iprhelpdesk.eu/node/1623

Apart from representations made still there arise situations making licensee ultimately liable for

paying heavy damages which basically he is not liable for. To cope up with such risks the licensee

can ask the licensor to indemnify him against such risks like breach of contract, patent infringement

etc. In such cases the indemnity may be accompanied by an obligation over the licensor to defend the

licensee.

For instance: If there’s a claim for infringement of copyright about which both the parties are

unaware of. In such case the licensor could get obliged by indemnification clause to defend for

licensee. But if the licensee has made any modifications to the IP licensed, which is the cause of the

problem, the licensor can escape this liability.

4.10.2) Force Majeure:

A “Force Majeure” is basically some event beyond the control of either party to the agreement. On

happening of such an event party’s obligation to comply with the agreement either diminishes

temporarily or permanently.

4.10.3) Severability:

This clause is basically incorporated to sever any invalid clause from affecting operation of rest of

the valid part of the agreement.

4.10.4) Relationship Between The parties:

Thos clause states what relationship does and does not exist between the parties such as a

partnership, joint venture, a master-agent relation etc.

4.10.5) Waiver of Breach:

A waiver clause may allow a party to waive one breach of the Agreement by the other party, while

reserving the right to insist on strict compliance with the Agreement in the future.

4.10.6) Notice:

The notice clause fundamentally sets forth the “address” where the notices by the parties can be

served, the acceptable means/mode of communication, the presumptions as to delivery of

communications. Apart from these in some agreements clauses provisos regarding “Insurance”,

“Entire Agreement” and “Governing law Forum” can also be inserted.

5.) A SAMPLE TRADEMARK LICENSING AGREEMENT:

This Agreement is entered into at Mumbai on 12 June 2012

BETWEEN: “XYZ”, son of ABC resident of.....................(address) hereinafter called as “the Licensor” which expression shall unless repugnant to the subject or context thereof includes his successors, heirs, administrators and executors and assigns of the First Part.

AND: “PQR pvt. Ltd.”, a Company incorporated under The Indian Companies Act 1956, and having its registered office at........................... hereinafter called as “the Licensee” which expression shall unless repugnant to the subject or context thereof includes its successor-in-title and assigns of the Other Part.

WHEREAS A.   The Licensor owns all the right, title and interest in and to the trademark “X” in relation to the

goods specified in ANNEXTURE 1 and the goodwill attached thereto.

B. The Licensor and the Licensee enters into this agreement in order to permit to use and apply the Trade Mark in relation to the specified goods, in connection with the use/ marketing/distribution/sale/disposal of the specified goods reserving the right to develop and manufacture to himself.

C. The Licensor hereto desires to record the terms and conditions on which he wishes to license the grant to the Licensee and certain other matters related thereto in the manner hereinafter contained:

NOW WHEREFORE THE LICENSOR AND THE LICENSEE, IN A SPIRIT OF COOPERATION AND COLLABORATION, AGREE TO THE FOLLOWING TERMS AND CONDITIONS:

1. DEFINITONS:

1.1) Licensed Trademark : means the trademark “X”.1.2) Royalty/Revenue: means all the fees and compensations that the licensee is obliged to pay

under this agreement as per the amount calculated under clause 4.1.1.3) Territory: means the whole of the area of State of Maharahstra.1.4) Net Sales: means the total gross sales of all Articles distributed or sold under the trademark

“X” at the greater of Licensee’s invoiced selling price or Licensee’s regular domestic wholesale warehouse price.

2. TERMS AND CONDITIONS:

This Agreement shall commence on [12 June 2012] and, unless earlier terminated in accordance with clause […], shall continue in force for a period of 2 years. The aforesaid period however, may extend by mutual consent of the parties.

3. GRANT OF LICENSE:

3.1) The Licensor hereby grants to the licensee a non-exclusive license, a non-transferable and non-revocable to use the trademark in relation to the products manufactured by or for the licensee for sale in Maharashtra (hereinafter referred to as the “territory).

3.2) The Licensee shall during the term of the Agreement use the Trade Mark only in the [form and style in which the Trade Mark is registered or form, colour, style and manner directed or approved by Licensor in writing from time to time].

3.3) Unless authorised in writing by the licensor, the said Trade Mark shall not be used in close proximity to or in combination with any other trade mark, whether owned by the user or any third party.

3.3) The Licensee shall during the term of the Agreement ensure that all manufacturing, packaging, storage, marketing and supply operations of the goods are conducted consistently with good practices and in accordance with the specifications communicated by Licensor from time to time.

4. PAYMENTS:

4.1) During the term of the agreement the licensee shall pay to Licensor royalties calculated by reference to Net Sales of the Licensed Products sold by Licensee at the rate of 6.2% P/A.

4.2) The User shall pay the aforesaid amount on or before the 10th day of each month.

5. MARKETTING EFFORT:

The licensee agrees that keeping in mind the market requirements and other affecting exigencies prevailing in the territory, it will do the advertisements, promotions and sale campaigns on annual basis during the term of the agreement. The cost of such promotion shall also be borne by it solely.

6. INFRINGEMENT:

6.1) The licensee undertakes to bring to the notice of the licensor all case of infringement and/or passing off of the said trademark. If required by the licensor the licensee shall permit the licensor to undertake action in the name of licensee and the licensee agrees to fully cooperate with the licensor.

6.2) The costs of such proceedings shall be borne by both the parties in equal proportion.

7. WARRANTY:

7.1) Licensee represents, warrants and agrees that the Licensed Goods under the Trademark “X”, Advertising Materials and/or designs shall

(i) Be of good quality in design, material and workmanship and suitable for their intended purpose, and(ii) Not infringe or violate the rights of any third party.

7.2) Licensee further represents, warrants and agrees that all work on and contribution to the Works shall be by bona fide “employees” of Licensee working “within the scope of employment.”

8. WAIVER:

No term or provisions of this agreement shall be deemed waived, unless such waiver or consent shall be in writing and signed by the party claimed to have waived or consented.

9. NOTICES:

9.1) All notices and communications as may be required shall be server in writing in any of the following modes of communication and such notices shall be served at the addresses of the parties as appearing in the agreement:

a) Delivery by hand with acknowledgementb) Registered postc) Courier

9.2) Any communication sent by either of the parties to other shall be deemed to have been properly delivered, if such communication is returned as unclaimed or refused, and if the same was sent by any modes mentioned above.

9.3) Unless any party informs the other party of the changes of address for communication in writing, all notices sent to the existing address shall be deemed to have been received by the party irrespective of the fact whether it has been actually taken in receipt of the same or not.

10. TERMINATION OF AGREEMENT:

10.1) The licensor may terminate this agreement as follows:a) If licensee does not make a payment due hereunder and fails to cure such non-payment

(including the payment of interest in accordance with paragraph 4.1) within forty-five days after the date of notice in writing of such non-payment by the licensor.

b) If licensee defaults in its obligations under clause (5).c) If licensee shall become insolvent, shall make an assignment for the benefit of creditors, or

shall have a petition in bankruptcy filed for or against it. Such termination shall be effective immediately upon licensor giving written notice to licensee.

d) If licensee is convicted of a felony relating to the use, marketing or sale of licensed products.

10.2) LICENSEE may terminate this agreement by giving ninety days advance written notice of termination to LICENSOR and paying a termination fee of [amount]. Upon termination, licensee shall submit a final royalty report to licensor and any royalty payments and unreimbursed expenses invoiced by licensor shall become immediately payable.

11. EFFECT OF TERMINATION:

11.1) Upon termination of this agreement for any reason whatsoever:a) The licensee will immediately cease any further use of the said Trade mark, codes or

descriptions or any packaging, printed or other material the use of which the licensor might have approved.

b) The licensee shall hand over to the licensor all labels, packaging, printed or other material or the like featuring said Trade Mark, code or descriptions as aforementioned.

c) The licensee shall stop using the said Trade Mark immediately in an manner whatsoever and shall also give an unconditional undertaking to the licensor in writing assuring that neither it shall use the said Trade Mark nor will it enable anyone else to exploit the same.

12. SEVERABILITY :

Any term, clause or paragraph of this agreement, if held invalid for any reason. Such invalidity shall not affect the operation of any other valid term, clause or paragraph thereof, and such invalid term, clause or paragraph shall be deemed to have been removed from this agreement.

13. ARBITRATION:

Any dispute or claims that arise between the parties concerning this agreement or any condition herein contained shall be referred to the sole arbitrator to be appointed by the licensor, according to the provisions of Arbitration and Conciliation Act, 1996 and any amendment made thereto.

14. JURISDICTION:

This agreement shall be governed by and construed in all respects with the Indian laws and the parties hereto agree that any matter or issues arising hereunder shall be subject to the non-exclusive jurisdiction of the courts of the city of Mumbai.

15. MISCELLANEOUS :

14.1) AmendmentNo amendment can be made to this agreement without the written approval of both parties.

14.2) Non-AssignabilityThe licensee is not entitled to assign, sublicense, transfer, or otherwise convey any of the rights it enjoys as well as any obligation imposed by or under this agreement.

14.3) Relation of Parties to the Agreement:

a) This agreement is made solely and specifically between the parties mentioned hereto, and thus shall not be enforceable by any person who is not a party at the date of the agreement. Further neither party may declare itself a trustee of the rights under the agreement for the benefit of any third party.

b) Nothing in this agreement shall be deemed to constitute, a partnership or venture between the parties, nor shall it constitute, any party the agent of any other party for any purpose.

14.4) Copies of Agreement:This agreement is being executed in duplicate with one original copy eing retained by each party.

IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE EXECUTED EFFECTIVE AS ON THE DATE FIRST HEREIN ABOVE WRITTEN.

PQR Pvt. Ltd. XYZ, Son of ABC, Resident of.............By: ................................ By:...........................................................(Signature of officer, partner, or (Signature of person duly authorized toperson duly authorized to sign) sign)Title: ............................ Title:.........................................................Date: ............................ Date:........................................................

WITNESSES: ADDRESS SIGNATURE DATE

1.

2.

ANNEXTURE-A

TRADE MARK

TRADE MARK NO. DATE CLASS

DESCRIPTION OF GOODS

6.) CONCLUSION:

It’s imperative to any of the owner of an intellectual property to be prudent as related to his rights and liabilities. At the same time while licensing, the licensor, especially if it’s an Indian Co. must do proper due diligence as regards to whether the agreement is made according to the IP laws prevailing here or is in conformity with the Indian Reserve Bank Rules in case of share licensing etc. Further, in case of any conflict arising even after taking all the precautionary steps, arbitration might be opted as the best recourse in today’s economy as for the same a separate international institution i.e. DSB has also been established under the “TRIPS” by WTO to settle cross-boundary disputes.

7.) SELECTED BIBLIOGRAPHY:

1. Dr. S. Y. MYNENI, Law of Intellectual Property (6th ed)(), Khetrapal Publications, Indore.2. P. NARAYAN, Intellectual property law (1999), Eastern Law House, Calcutta.

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