Licensing IP that you don’t own

What can you do if you find out that your licensor doesn’t own the IP that he licensed to you?

You may have both civil and criminal remedies. But first we need to understand what the problem is.  Is it a major case of fraud, or a minor problem over obtaining an assignment from an inventor, where the inventor will cooperate in executing an assignment if asked?  Or has the licensor incorporated open source software into the licensed software and not told you?  Or does the IP not exist in the licensed territory (a scenario that we encountered a few years ago during a due diligence exercise on an acquisition target: the parties to a patent licence agreement for the Japanese territory discovered, only after signing the licence agreement, that the licensor’s patent portfolio didn’t include any Japanese patents!).  Your remedies will depend on what the facts are.

On the civil side, the licensor may be guilty of misrepresentation and/or breach of warranty.  The first place to look is the licence agreement, to see what warranties, dislaimers and limitations of liability it may contain.  If there are no express warranties, you may need to consider whether a court would imply a warranty of ownership into the agreement.  This will depend on the facts as well as underlying contract law; national and state laws vary as to whether such a term might be implied.  Under English law, for example, it might be possible to persuade a court to imply such a term into a licence agreement in an individual case, but there is no statutory, implied term of title or freedom from encumbrances, such as exists in the case of sale of goods under sections 12(1) and 12(2)(a) of the Sale of Goods Act 1979.

On the criminal side, general criminal law (eg the UK offence of fraud by false representation) may be relevant.  There may also be IP-specific criminal laws that are relevant.  For example, in the UK, where copyright works are involved, an offence under section 107 of the Copyright, Designs and Patents Act 1988 may have been committed.

Additionally, in the UK, we should not overlook a little-known provision of the Law of Property Act 1925. Section 183 includes the following provisions, which create both a criminal offence and civil liabilities:

183 Fraudulent concealment of documents and falsification of pedigrees.

(1)Any person disposing of property or any interest therein for money or money’s worth to a purchaser, or the solicitor or other agent of such person, who—

(a)conceals from the purchaser any instrument or incumbrance material to the title; or

(b)falsifies any pedigree upon which the title may depend in order to induce the purchaser to accept the title offered or produced;

with intent in any of such cases to defraud, is guilty of a misdemeanour punishable by fine, or by imprisonment for a term not exceeding two years, or by both.

(2)Any such person or his solicitor or agent is also liable to an action for damages by the purchaser or the persons deriving title under him for any loss sustained by reason of—

(a)the concealment of the instrument or incumbrance; or

(b)any claim made by a person under such pedigree whose right was concealed by such falsification as aforesaid.

Thus, section 183 applies to disposals of property and interests in property.  It is clear from other sections of the LPA that references to “property” in the LPA are not confined to land, and could apply to intellectual property.  (For a more detailed discussion of this point, see chapter 9 of our book, Technology Transfer (Bloomsbury Publishing, 3rd edn, 2010).)

It is less clear whether a licence of intellectual property amounts to a disposal of an interest in property.  Conventional thinking among English IP lawyers is that a licence is merely a contractual right, and not a property interest in the licensed IP, although in the case of an exclusive licence there is a stronger argument for a property interest, as the licensee has certain statutory rights (eg to bring infringement proceedings under section 67 of the Patents Act 1977).  By contrast, assignments of IP would seem to be clearly within the ambit of section 183.

Of particular interest to IP lawyers is the potential for personal liability (criminal and civil) of a “solicitor or other agent” acting for a party disposing of property or an interest in property.  Potentially this might arise if the IP adviser knew of a defect in his client’s title and concealed it from the other party.

Readers who have a background in financial transactions may be wondering what all the fuss is about.  After all, in the City selling something you don’t own is a well-recognised practice.

Are readers aware of any other areas of law that may be relevant to defective title in IP transactions?  We are particularly interested to know what the position is in other major jurisdictions.

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Filed under Intellectual Property, Licensing

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