Warranties in a licence agreement

warrantThe most popular search term on this blog in 2022 has been “warranties in a license agreement”. Looking back over previous years, the search terms have seemed rather random. In 2021, the most popular search term was “short word for agreement”. That one has IP Draughts stumped: deal?

The blog has discussed warranties before, but there is always room for new thinking.

Meaning. What do we mean by warrant/warranties? IP Draught can think of at least 5 different meanings that he has encountered in a contractual setting:

  1. A promise in a contract that a fact is true, eg “Licensor owns the Licensed Patent”.
  2. Any promise in a contract, eg “Licensor will notify Licensee if Licensor receives a claim of infringement.”
  3. A lesser obligation in a contract, breach of which may result in a claim for damages, but not the right to terminate the contract. By contrast, breach of a (promissory) condition would result in a right to terminate the contract. This is a traditional distinction under English law.
  4. A manufacturer’s guarantee to a consumer, eg to repair or replace a washing machine if it breaks down in the first year after purchase.
  5. A kind of share option offered by a company.

In the context of “warranties in a license agreement”, the most likely meaning is “a contractual promise that a fact is true”.

Types of factual warranties. Within this category, there are different sub-types, including:

  • general “boilerplate” promises, eg that each party has the power to enter into the agreement. These have become more popular in English law contracts in recent years, probably through the influence of US template agreements. IP Draughts thinks these clauses typically do no harm, but are unlikely to be important in a contract between two English corporations.
  • promises given by a licensee. In IP Draughts’ experience the licensee typically gives fewer warranties than the licensor. The main example that comes to mind is that his template licence agreement includes a warranty by the licensee that it is not developing or commercialising a product that would compete with licensed products, ie products sold under the licence granted by the licence agreement.
  • promises given by a licensor on IP issues.
  • promises given by a licensor on other issues, eg as to having obtained regulatory approval for a drug, or that it is is entitled to disclose personal data to the licensee.

The remainder of this article focuses on factual statements made by a licensor in relation to IP.

Implied warranties and disclaimers. As a further preliminary, it is important to consider the law of the contract, and whether IP warranties might be implied into the licence agreement. English law tends to imply terms into contracts only when strictly necessary. Perhaps an English court would imply a term that the licensor owns the licensed IP, which may be thought a fairly fundamental point. Other countries’ courts might imply many more terms.

Best practice, in IP Draughts’ view, is to spell out the warranties in detail, and also to have clauses that make clear that there are no warranties other than those set out in the written agreement. Since he first started to develop a template licence agreement in the late 1980s, he has included both a general entire agreement/disclaimer of implied terms clause and a non-exhaustive list of warranties that are not being given, eg that licensed products made and sold under the agreement do not infringe third party rights, are safe, fit for purpose etc. While it may be unlikely that these terms would be implied under English law, particularly if there is a general disclaimer of implied warranties, these terms may be thought useful for two reasons:

  1. To try to avoid any commercial misunderstandings, and
  2. To deal with the situation where, though an English law template is used, the parties negotiate a different law and jurisdiction in the agreement, and more is implied into contracts in such a jurisdiction.

Variety of IP warranties. In IP Draughts’ experience, there tends to be a correlation between the extent of licensor IP warranties and the value of the licence agreement. Agreements that are signed when a product is close to market or large payments are being made to the licensor tend to have more aggressive warranties than early stage, low value licences. There is also a difference in practice between different commercial sectors. Most notably, IP Draughts sees non-infringement warranties in some software licence agreements that would be very rare in biotech licence agreements.

An example of a light touch set of licensor warranties in a patent licence agreement might be:

The IP Company warrants that:

(a) it is the registered proprietor of, or applicant for, the Patents and has caused all its employees who are named as inventors on such Patents to execute such assignments of the Patents as may be necessary to pass all of their right, title, and interest in and to the Patents to the IP Company[; and]

(b) it has not done[, and shall not do nor agree to do during the continuation of this Agreement,] any of the following things if to do so would be inconsistent with the exercise by the Licensee of the rights granted to it under this Agreement, namely:

(i) grant or agree to grant any rights in the Patents in the Field in the Territory; or

(ii) assign, mortgage, pledge, charge, or otherwise transfer any of the Patents in the Field in the Territory or any of its rights or obligations under this Agreement.

A more pro-licensee set of warranties would be far more extensive. Perhaps the most extreme example of this, which IP Draughts includes as an optional clause in his template licence agreement, is the following warranty:

The IP Company warrants that:

…All statements contained in any applications for the registration of the Patents were true and correct as of the date of such applications; [for the purposes hereof, “statements” shall be limited to those statements which, if not true and correct, would invalidate any issued Patents, preclude the issue of any Patents or limit or otherwise reduce the scope of any claim made under any Patents]

IP Draughts encountered this warranty in the negotiation of a late-stage pharmaceutical patent licence agreement. It was drafted by an in-house, US patent attorney at the licensee. IP Draughts’ client, the licensor, was not in a strong bargaining position. The wording in square brackets was negotiated in to the warranty by IP Draughts after detailed discussion of the licensee’s concerns when asking for the warranty.

 

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Return of the bla-bla meter

blablameterOver 10 years ago, this blog reported on a wonderful new toy. It had the polite name bla bla meter (you can guess what the less polite version might be). It was a simple online tool that measured the bla-bla level of any piece of text. The scores ranged from 0.1 to 1 – the lower the better.

IP Draughts remembers putting the judgments of Sir Robin Jacob and Lord Neuberger into the meter, and not being suprised that they scored very well – 0.16 to 0.19.

Something prompted him to return to the meter today. He was relieved to see that the last article on this blog scored fairly well. He tried out the SRA’s rules of conduct for English solicitors. They were middle of the road – could do better, but not the worst examples of corporate speak. He then tried the Law Society’s latest three-year strategy. Oh dear! It scored very badly.

It was revealing to see which of the Society’s four strategic objectives scored highest on the scale.

Best (least bla bla) was objective 2 – the rule of law and access to justice.

Next came objective 4 – being an employer of choice.

This was followed by objective 1 – promoting the value of the profession and having a compelling member offer.

Worst was objective 3 – maximising the Society’s commercial potential. This scored so badly that it “broke” the meter, by scoring more than 1.

IP Draughts is not suprised by these relative scores. The office holders of the Law Society genuinely care about the justice system, and the new CEO cares about being an employer of choice. The text on these two points is relatively direct.

The Society says it wants to focus on members’ interests, but isn’t always convincing. And it wants to be more commercial, but IP Draughts doubts the Society’s commercial skills. The text used to express these objectives had excessive amounts of bla bla.

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Culture wars and IP law

crazyWhen will the craziness end? Not content with coming out of the European Union, a strand of the Conservative Party seems obsessed with playing ideological games rather than promoting the economic well-being of UK citizens. This is potentially disastrous for our system of IP laws.

Back in the Autumn of 2017, IP Draughts led on the writing of a note from the IP professions to the UK government on Brexit and IP. We made five recommendations:

  1. Continue EU-derived IP rights, either by negotiation with the EU or the introduction of new UK legislation.
  2. Participation in the Unitary Patent.
  3. Establish new rules on exhaustion of rights.
  4. Continued rights of representation of IP professionals at EU courts etc.
  5. Mutual recognition of judgments between UK and EU.

Readers will be aware of the UK government’s rejection, or lack of progress, on these points. At the time the note was written, it was not obvious to the authors just how ideological the Conservative government would be in managing post-Brexit relations with the EU. At that time, the government had decided to ratify the UPC, though it later changed its mind.

On reflection, it seems to be not just an ideological objection. There seems to be a complete lack of interest in solid achievement for the benefit of the economy and the financial wellbeing of UK citizens; solid achievement doesn’t lead to positive headlines in the Daily Mail.

So, we have Dominic Raab back as Lord Chancellor and Secretary of State for Justice, and more focused on repealing human rights legislation than saving the imperilled legal aid system.

And we have Jacob Rees-Mogg, steering a Parliamentary Bill that would automatically repeal all UK legislation that was inherited from the EU.

The UK Intellectual Property Office has identified 67 pieces of IP-related EU legislation that would be wiped out if the Bill becomes law, and if the government doesn’t introduce replacement legislation. Oh, don’t be silly, IP Draughts can hear some of you say. Of course, common sense would prevail, and this legislation would be retained. It would be economically disastrous to do otherwise.

Part of IP Draughts agrees, particularly when he hears the latest Chancellor of the Exchequer say positive things about the importance of R&D to the UK economy. But it wasn’t so long ago that Boris Johnson said “f*** business”. And he has no confidence that head-bangers like Rees-Mogg and Raab care about making the system work.

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A rosy future for IP law practice

garden 2022 (2)Last week was the tenth outing of the IP Transactions course, held annually at the UCL Faculty of Laws. Over the last decade, we have taught several hundred lawyers, and had several score of teachers. Thanks to all who have contributed. Particular thanks to the 30 specialist lawyers who (together with IP Draughts) delivered this year’s outing:

John Hull, a visiting professor at KCL and formerly a partner with major London firms.

Matthew Warren, a partner at Bristows

Cerys Wyn Davies, a partner at Pinsent Mason

Molly Woods and Louise Johnson, respectively a partner and senior associate at Ashurst

Chris Bates, a partner at Ashurst

Gina Bicknell, a partner at Pinsent Mason

Mark Lubbock, a partner at EIP

Tim Worden, a partner at Goodwin

Ruth Arkley, a partner at Brown Rudnick

Sally Shorthose, a partner at Bird & Bird

Chris Shelley and Edmund Forey, respectively a partner and managing associate at Pennington Manches

Paul Maclennan and Stephen Brett, partners at Anderson Law

Louise Fullwood, a Legal Director at Pinsent Mason

Charles Kerrigan, Laura Collins and Isabel Neelands, respectively a partner and associates at CMS

Toby Crick and Faye Harrison, respectively a partner and senior associate at Bristows

Sam de Silva, a partner at CMS

Nabil Asaad and Tom Foster, senior associates at Taylor Wessing

John Enser, a partner at CMS

Tomos Jones, a senior associate at Reed Smith

Ruth Burstall, a Legal Director at Johnson & Johnson Innovation

Ed Swift, a senior associate at Baker McKenzie

Natalie Ellerby, former Counsel at Linklaters

Jeff Skinner, Teaching Fellow, Strategy & Entrepreneurship, London Business School, and former Commercial Director, UCL

IP Draughts would also like to thank this year’s students, who came from several countries to attend the course. They provided lots of questions and comments during the week, and this made the proceedings very interesting. IP Draughts left the course feeling that IP legal practice will be in good hands when these talented practitioners reach the top of their profession.

Particular thanks to a student from Finland who posted the following comment on LinkedIn yesterday:

Five days of studying IP transactions at UCL. Amazing speakers and many interesting lectures covering IP in M&A transactions, IP transactions in the life sciences and media industry, IT licensing, OSS and cloud deals, and so much more. I’m going home with a whole lot of new inspiration and ideas so beware team, I have a feeling that I will be talking about this course for a long time 😄

A big thanks to Mark Anderson, Lisa Penfold and UCL for arranging the course as well as to all speakers and the IP practitioners attending the course with me, it was great meeting you all and hope to see you soon again!☺️

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