Sublicensing (part 1): make it express

A recent posting on IPKat raised the subject of sublicensing.

Below are a few thoughts on how sublicensing should be treated in the main licence agreement (ie the agreement between licensor and licensee).

To discuss this topic we need to distinguish between three parties: (1) the licensor who owns the IP, (2) the licensee, and (3) the sublicensee.  In any sublicence agreement, the (head) licensee becomes the (sub) licensor, but that makes life confusing in a short discussion, so we will refer to the parties to a sublicence agreement as the licensee and the sublicensee.  For the purposes of this discussion, it is assumed that the territory of the licence covers more than one country (jurisdiction).

1. The licence agreement should state whether sublicensing is permitted.  In the absence of an explicit statement in the licence agreement, we may have to fall back on implied terms under applicable law.  This probably means the law of the contract, although I have a niggling concern that a court might decide that questions of sublicensing are in the realm of national property law rather than contract law.  For example if the contract is made under English law but one of the territories of the licence is Germany, should one look to German IP law to determine whether sublicensing in Germany is allowed?  Perhaps this thought is far-fetched; a discussion of the complexities of lex forum and lex situs as they apply to international IP transactions is certainly well beyond the scope of a blog posting (and probably beyond the talents of this blogger).  Assuming that it is the law of the contract that is relevant, what do national laws say about implied terms allowing sublicensing?

The answer seems to vary across jurisdictions (and possibly across categories of IP – patents, copyright, and so on).  Section 30(4)(a) of the UK Patents Act 1977 states that a licensee may grant a sub-licence “to the extent that licence so provides”.  This means there needs to be a provision in the licence agreement allowing sublicensing, although this wording doesn’t entirely rule out the possibility of implying such a provision.  According to the German contributors to our book on life science transactions, it is implied under German law that an exclusive licensee may sublicense but a non-exclusive licensee may not.  To take an example in another area of IP, many years ago we received advice from Italian lawyers that sublicensing of trade marks was not possible (or prejudiced the trade marks) under Italian law, as there needed to be a direct connection in the course of trade between the trade mark owner and the party that was applying the trade mark to goods; a sublicensee was not sufficiently directly connected to the trade mark owner.  I don’t know whether this is an up-to-date summary of the position under Italian law.  The general point is that it is far better to state in the licence agreement whether sublicensing is permitted than to have to rely on the uncertain effect of general law.

That is probably enough for one blog posting.  I will return to this theme again, with comments on:

2. Whether licences should extend to affiliates of the licensee.

3. The relationship between sublicensing and licence grants to “have made” and “have sold”.

4.  Conditions of sublicensing, including whether sublicences should continue if the licence is terminated.

5. Royalty structures and sublicensing.