George Clooney on Perpetual Agreements

Last week, the Draughtatrix took IP Draughts to see the latest George Clooney film, the Descendants. IP Draughts was intrigued to see George Clooney playing the role of a low-key property lawyer (albeit one who is the sole trustee, and one of the beneficiaries, of a large family inheritance on a Hawaiian island).

The unlikely premise of the film is that the family inheritance is at risk under the Rule Against Perpetuities, which invalidates certain trusts if the beneficiaries are defined too widely.  George, as trustee, needs to take a decision on whether to sell a large area of beautiful, unspoilt land to property developers.  The beneficiaries, led by a raddled bar-fly played by Beau Bridges, naturally want the land to be sold.

The other main plot-line concerns George’s screen wife, who is in hospital on a life-support machine, after a speedboat accident.

As the film dragged on, IP Draughts felt that it would have been more interesting if George had delivered a lecture on how the rule against perpetuities applied under Hawaiian law.

English lawyers of IP Draughts’ generation were taught at law school to be wary of the English version of the rule.  In an IP context, a provision stating that a licence was “perpetual” rang an alarm bell in the mind of a right-thinking lawyer, and the instinctive reaction was to delete the word “perpetual” and replace it with wording stating a long, but definite, time-period.

IP Draughts recalls doing some research on this point in the 1980s and concluding that the English rule, if it applied at all to IP licences, could only apply to the situation where future improvements of the licensed IP were brought within the scope of the licence for an unlimited period.  Such a provision was also problematic under Article 85 of the Treaty of Rome (now Article 101 of the Treaty on the Functioning of the European Union), and this was the area of law that it was worth spending time on; the perpetuity point was theoretical and of marginal significance.

At around the same time as he did this research, IP Draughts recalls seeing a trade mark licence agreement, drafted by a prestigious firm of lawyers in the City of London, in which there was a clause stating that the perpetuity period, for the purposes of the agreement, was 80 years. Specifying a perpetuity period was a way of avoiding the invalidating effect of the rule.  This is the only time that IP Draughts has seen such a provision in an IP agreement.

English law on perpetuities has been overhauled since the 1980s, most recently by the Perpetuities and Accumulations Act 2009, and the revisions make it even less likely than before that the rule is an elephant trap for the IP contract drafter.  In summary, for instruments created after 2010, the Act only applies to a limit category of trusts and wills.  Most IP licence agreements do not create trusts, so it seems that the rule cannot apply to them.

IP Draughts would be interested to know if the rule has any continuing application to IP agreements under the laws of any other country or US state.  Can any reader enlighten us?

6 Comments

Filed under Contract drafting, Intellectual Property, Licensing

6 responses to “George Clooney on Perpetual Agreements

  1. It came up in McAllister Software v. Schein, resulting in the court voiding (under NY law) a software distribution agreement with a perpetual term.

    http://itlaw.wikia.com/wiki/McAllister_Software_v._Henry_Schein

    • Interesting – thank you. I have only read the brief summary that you linked me to, but my impression is that an English court would probably have reached for an implied term allowing termination on reasonable notice, rather than the rule v perps. It seems an obscure legal basis on which to grant summary judgment.

      • Not only that, it suggests the judge had no clue what the RAP is about. Where’s the property, much less the contingent interest that’s supposed to vest within lives in being plus 21 years?

        Moreover, under US copyright law (Federal), an exclusive license is considered an assignment of the copyright. That being the case, if the property to which the RAP supposedly applied was the IP in the software, it would have been transferred without any contingency by the exclusive license.

        Sounds to me like defendant’s counsel was not very effective, to put it mildly, in educating the court.

  2. Vance Koven

    Wouldn’t the answer depend on whether a license is an interest in property? It always seemed to me that what a license is is a contract under which the licensor agrees (albeit on behalf of all future owners of the underlying IP) not to sue the licensee for doing something that would otherwise constitute an infringement of the licensor’s IP (assuming further that “IP” represents actual property, and not merely a metaphor). If the license were a property right, the question then is whether the grant to the licensee has vested, that is, is free of any contingency, but of course it has done from the moment of grant.

    That is, ordinarily. A contingent license (to A but to B if licensee challenges the validity of the IP) might come under the rule, but the more typical situation is that the license at that point terminates or is terminable. That, in essence a reverter, is not subject to the rule (at least under the usual common law formulations in the US).

    It might be possible to construct a scenario in which intergenerational contingencies could violate the rule, but only in the same contexts–wills and trusts–as the traditional RAP covers real (that is, *real*) property.

    In my view the duration of the underlying IP is irrelevant to any analysis of a license under the RAP. It is, in Alfred Hitchcock’s term, the MacGuffin.

    • Vance, basically I agree with your analysis. My only slight reservation with your comments is that under the previous English law (the Perpetuities and Accumulations Act 1964), the law applied to “dispositions” of property. Disposition was defined as including any “disposition of an interest in or right over property”.
      I agree that a licence is not generally regarded as an interest in property, being a mere contractual right. There is English case law to this effect. Licences are described in the English legislation as a right “under” the patent or other IP. I am not sure what a right “over” property is (see above) – is it the same as a right under property, ie a contractual right? Real property lawyers may know the answer. I don’t recall this fascinating semantic distinction being discussed!

  3. ct

    I’ve not seen the issue arise in U.S. IP contracts, although I can’t say that it never has. Copyrights and patents have finite terms, and as a practical matter most softwares being licensed have a natural life-cycle. I suspect the oldest software source code still in use dates from the late 1950s or early 1960s — so there probably hasn’t been sufficient time for the issue to become relevant, if it ever will.

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