Next up is Peter Brown of Baker Hostetler discussing critical pitfalls in Intellectual Property Licenses.

Sublicense v. Valid Exercise of Rights Under License Agreement

• – Licensees may be in violation of the license agreement if they enter into agreements with third parties that effectively equal a sublicense
• – Courts will look at the nature of the relationship between the parties to determine whether a sublicense exists (E.I. du Pont de Nemours and Co. v. Shell Oil Co.,498 A.2d 1108, Court held arrangement equals sublicense).
• – Implied Licenses – parties should explicitly state all of the rights that are included in a license or state those that are not included in the license or disclaim any implied licenses.  Certain rights may be implied by the circumstances, even though not explicitly stated where without the implied right, the license would not benefit the licensee. (Met-Coil Systems Corp v. Korners, Unltd.803 F.2d 684 , Court held that unrestricted sales of a machine useful only in performing the claimed process & producing the claimed product plainly indicates that the grant of a license should be inferred)
• – Vague or Ambiguous Term Lengths – general rule of contract law: contracts of indefinite duration are terminable at will by either party.  If a contract lacks express language setting the duration, the court will be reluctant to find that a perpetual license exists. (Barton v. Concept Laboratories, Inc, 2010 U.S. Dist. Lexis 11716, Court held an agreement to license for an indefinite time is terminable at willbe licensor).  Express language setting duration does not require a specific number of years.  Other language in the contract might be sufficient to set the duration of the agreement.
• – Prohibitions Against Assigning and Transferring Licenses– if considering a corporate reorganization, make sure to review contracts and licenses.  If assets are transferred to another entity, could be violating the agreement if it contains prohibitions against assigning or transferring. (Cincom Systems, Inc. v. Novelis Corp, 581 F.3d 431). 
• – Limitation of Liability Clauses – a license agreement may include a damage exclusion clause that limits the liability of either party in the event of a breach.  Courts are willing to uphold these clauses leaving the injured party stuck with the loss. (Metropolitan Life Ins. Co. v. Noble Lowndes Int’l, Inc., 84 N.Y.S.2d 430). Limitation of liability clauses will not apply to gross negligence. 
• Best way to avoid pitfalls is advance, careful planning while considering present and future business needs.
• Counsel must fully understand the scope of their clients’ current needs and make sure the language adequately covers those practical concerns. 

Tags: implied licenses, liability clauses, license agreement, licensee, patent license agreements, sublicense

This entry was posted on Thursday, February 17th, 2011 at 21:01 and is filed under Intellectual Property Licenses, Patent Law Institute, posts. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.