Monthly Archives: July 2012

10 words and phrases you should use in IP contracts

One of the most popular articles on this blog is Ten Words and Phrases You Should Never Use in IP Contracts.  To celebrate reaching 50,000 viewings on this blog, here is a companion piece to that article, in which we identify 10 words and phrases that should be used in IP contracts, and which make Mr Pettifog happy [marginally less irritable].

  1. Hereby. IP Draughts tries to avoid words such as hereinafter and whereof in contracts.  However, he makes an exception for hereby, specifically in the context of hereby grants and hereby assigns.  It may be important to be clear on whether the agreement is granting a licence or assigning IP now, rather than merely promising to do so in the future.  For example, using the words hereby assigns rather than shall assign or agrees to assign places beyond doubt that the assignment is occurring now, under the present instrument, rather than in the future.
  2. This goes on for ever and ever, Amen

    Grants. Sometimes contracts, particularly some American ones, use a blizzard of words where one will do.  See the example quoted oppositeIP Draughts prefers to find the correct word and stick with it.  In the case of licences (but not in the case of assignments), the correct verb to use is grants, as in X hereby grants Y a licence…  If authority for this proposition is needed, the word grants is used in relation to licences in various IP legislation – eg see section 30(4) of the UK Patents Act 1977, which includes the words “a licence may be granted under any patent…”

  3. Exclusive / non-exclusive. Licences should be specific as to whether they are exclusive, non-exclusive, sole or in some other category (eg semi-exclusive).  Non-exclusive is fairly clear.  Exclusive causes some people confusion, to the point where some licence agreements use the formula exclusive (even as to the Licensor) .  The words in brackets are intended to make explicit that the licence is exclusive and not sole.  If in doubt, terms such as exclusive can be defined in the agreement.  More information on the differences between different types of licence can be found in standard textbooks, including our own (eg Technology Transfer).
  4. Licence. Various IP legislation refers to the possibility of granting licences under the IP in question.  For example, see the extract from section 30(4) of the UK Patents Act 1977, quoted above.  Therefore use words such as X hereby grants Y a licence… Other formulas should be avoided, eg …grants Y the right, or leases to Y.  In UK English, the conventional spelling of the verb is license and of the noun is licence.
  5. Under. Licences are granted under specified IP, as in the phrase X hereby grants Y an exclusive, worldwide licence under the Licensed Patents to make, use and sell Licensed Products.
  6. Assigns. The correct term for transferring ownership of IP is assign.  See for example section 30(2) of the UK Patents Act 1977 which includes the words “any patent …may be assigned”.  Therefore, the operative clause of an IP assignment should use words such as X hereby assigns the Patents to Y…  In IP Draughts’ view, using words such as conveys and sets over, as in the example quoted above, confuse the nature of the transaction and should be avoided.
  7. Royalty. Periodic payments for the use of IP, such as those calculated on the  sale price of licensed products, are conventionally referred to as royalties.  IP Draughts has encountered one anti-monarchist businessman, in Ireland, who asked for them to be called something else in a franchise agreement, but this is a very rare exception.  Sometimes tax advisers give upfront payments different names to try to put them in particular tax categories (eg “contribution to research costs” rather than “licence fee”), but IP Draughts has not encountered this with royalties.
  8. Warrants. The conventional name for a contractual promise that stated facts are true is warranty.  Warranties are distinguished, under English law, from representations; breach of the latter may give rise to liability under the law of tort rather than the law of contract. In IP Draughts’ view one should tread very carefully in the naming of these types of obligation, so as to ensure the correct interpretation by the court.  An alternative view, from US contract drafting guru Ken Adams, appears in his blog here.
  9. Diligent Efforts. IP Draughts tries to avoid using the expressions reasonable efforts (or endeavours) and best efforts, as well as other variants that may or may not have been considered by the courts and have an understood meaning (eg all reasonable efforts or commercially reasonable efforts).  Instead (and assuming that it is not possible to avoid general expressions of this kind altogether, eg by substituting measurable obligations such as minimum annual sales obligations), he prefers to use a defined term which sets out the level of obligation a little more precisely.  Sometimes, in licence agreements, he sets up a defined term Diligent Efforts and uses a definition such as the following: Exerting such efforts and employing such resources as would normally be exerted or employed by a reasonable Third-Party company for a product of similar market potential at a similar stage of its product life, when utilizing sound and reasonable scientific[, medical] and business practice and judgment in order to develop the product in a timely manner and maximize the economic return to the Parties from its commercialization
  10. Shall. For the reasons given above, it is sometimes appropriate to use a formula such as X hereby grants a licence to Y…  This formula is used only in limited situations, though.  Most obligations that are found in licence agreements (and to a lesser extent in assignments) are straightforward contractual obligations, that are best expressed by a formula such as X shall…  [notify Y (etc)]Shall is the conventional word to use, rather than agrees to, undertakes to, covenants to, or other, more wordy variations.  Will is an acceptable alternative to shall provided there is consistency of usage in the agreement.  Should is not suitable for contractual obligations, as it could mean something like ought to, but is not contractually obliged to…

A Wordle based on Anderson Law’s template patent licence agreement


Filed under Contract drafting, Intellectual Property

No time for work

IP Draughts is back from a very demanding week on a 1930s superyacht in the Mediterranean.  At one point, IP Draughts found himself explaining the employee compensation provisions of sections 40-41 of the Patents Act 1977 to a fellow guest while sipping a pina colada.  It turned out that the fellow guest was an inventor who was in the process of making a patent application on behalf of his employer.  Just too fatiguant, darling.

And then there was the Olympic opening ceremony.  It was nice to see Bradley Wiggins (winner of the Tour de France cycle race) in his yellow jumper without any of that nasty branding on it.  The ceremony featured Sir Kenneth Branagh dressed as Isambard Kingdom Brunel.  Curiously, the ceremony omitted any dramatisation of Brunel’s campaign to abolish the patent system.

On IP Draughts’ desk are the proofs of a brochure for a forthcoming postgraduate course on IP transactions.  With any luck, this will be finalised in the next few days.  The course will be held at UCL from 11th to 15th February next year.

Also on his desk are the proofs of a chapter on patent licensing, written by IP Draughts, that will be included in a multi-author book on licensing, edited by Professor de Werra of the University of Geneva, and due to be published soon, we hope.

Time to catch up on some client work.  A more substantive posting will follow soon.



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Filed under &Law Updates, General Commercial

University IP: A Source of Finance and Impact

IP Draughts has received a review copy of a new book entitled University Intellectual Property: A Source of Finance and Impact.

It is a short, multi-author handbook (149 pages) written by a team of experts, including several people whose work IP Draughts respects and with whom he has collaborated on IP-related projects:  Alex Weedon of UCL Business plc, Ian Bingham of IP Asset, and Sir Robin Jacob of UCL Faculty of Laws.  The book is edited, and several chapters are written, by Graham Richards, a former head of Chemistry at the University of Oxford and now the senior non-executive director of IP Group plc.

The book examines its subject mostly from the perspective of practitioners who deal with IP on a regular basis.  The authors know what they are talking about, and they explain their views clearly.  They provide case examples and anecdotes to support their analyses and conclusion.  There is very little waffle.  Most of the book is written in a commendably readable style.

The parts of the book that IP Draughts found least satisfactory are written by academics. One chapter is written by an economist who ends her text by recommending a massive 28 “steps for successful knowledge transfer”. These range from the sensible (“assure that academics do not act outside the law when collaborating with business”), through the obscure (“expand existing Memoranda of Understanding and ensure knowledge transfers”) to the pie-in-the-sky (“ensure royalties are not subject to taxation”).  This chapter refers to other work by the author, and it is possible that these steps are explained and justified more fully in those other works.

Another chapter is written by an academic who was one of the drafters of Who Owns Science? The Manchester Manifesto, a document that identifies problems with the intellectual property system in relation to academic research.  The author of this chapter considers that there is too much of a focus on patents in universities.  While this is a perfectly respectable position to take (and it is useful that the book includes an alternative point of view), IP Draughts was puzzled by some of the statements in this chapter, eg: “TTOs [technology transfer offices] and academic management should listen and respond to the needs of academics in order to ensure that they do not unnecessarily complicate or delay future academic use of results”.

Quite what this is driving at, other than a general wish to have TTOs act in accordance with academics’ instructions rather than those of the university’s senior management, and not to bother academics when they don’t want to be bothered, is not clear to this reviewer.  As Alex Weedon points out in his chapter, “most [TTOs] survive on invention disclosures from less than 15% of academic staff…”  TTOs tend to be reactive, dealing with projects that academics bring to them.  The academics who don’t want to engage with technology transfer usually have no need to do so.

The final chapter, written by Graham Richards, includes some brief recommendations: for universities to have appropriate IP policies; for government to encourage a standard approach on IP ownership and financial deal terms; and for TTOs to share facilities and collaborate on best practice.  Strikingly, this chapter refers several times in a few, short paragraphs to the need for standard agreements.  IP Draughts and his colleagues at Anderson Law have been involved in several initiatives in this area, including the Lambert Agreements and several publications that include template agreements (some of which are noted by Alex Weedon at the end of his chapter under the heading “Recommended Reading”).

The book provides a lively discussion of the most important topics in university IP and knowledge transfer, and is highly recommended for anyone wanting an introduction to these subjects.  It is crammed full of views and ideas, many of which are very briefly stated, and some of which IP Draughts disagrees with, but this book is not meant to be a rigorous statement of truth.  Rather, it introduces the reader to current issues and gives the views a group of experienced practitioners on those issues, views that should be taken seriously.  The treatment is light enough to make the book suitable for reading in a Kindle edition, which the publishers have made available.

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Filed under Book review, Intellectual Property

Why is our legal system not designed and run on engineering principles?

In a recent blog article, Professor Anthony Finkelstein, Dean of Engineering Sciences at University College London, commented: “I simply cannot understand how disciplines that struggle with complexity – law being a case in point – are able to do without [diagrams]. So many problems could be better explained, so much more material readily assimilated, and the route to analysis and problem solving smoothed, if a diagram were used.”

This prompted several memories of situations in which IP Draughts has worked with colleagues who have an engineering training, both lawyers and non-lawyers.  In IP Draughts’ experience, a combination of legal and engineering thinking can be a very powerful tool in problem solving. Just having one or the other discipline, though, can lead to mutual bafflement when lawyers and engineers mingle.

A good example of the combined approach can be found in the structure and content of a legal textbook, Chartered Institute of Patent Attorneys’ Guide to the Patents ActsIP Draughts has reviewed this book in the latest edition of the Journal of Intellectual Property Law and Practice.  In his review, IP Draughts comments:

The CIPA Guide is more like an instruction manual, written by engineers for engineers, than an extended essay written by classicists for classicists.  The approach of the CIPA Guide is unusual among law books, but well-suited to the area of patent law.

An example of mutual bafflement is an experience that IP Draughts had over 20 years ago, in a conference room in San Francisco.  IP Draughts was negotiating the terms of a trade mark licence agreement with a roomful of computer scientists from about a dozen computer companies, including IBM and some other large players.  IP Draughts’ client was a trade association that had developed standards of “open-ness” for UNIX-based computer systems.  Companies that met the standards were to be permitted to apply the trade association’s branding to their computer systems, under the terms of this licence agreement.  The companies were very keen to ensure that the terms of the licence agreement were appropriate.

During a line-by-line negotiation of the draft licence agreement, which took several days, one of the computer scientists piped up to complain that IP Draughts had included a “forward reference” in one of the clauses.  In other words, the clause used a defined term, but the term was not defined until a later clause.

In [traditional?] computer programming, if you use a defined term before defining the term, the program won’t work – it will “crash”.  Fortunately, judges have more mental flexibility than a computer, and can look forwards and backwards.  IP Draughts explained this to the computer scientist and the discussion moved on.  This small incident reminded IP Draughts that contracts and computer programs have many similarities, but also some significant differences.

In IP Draughts’ experience, engineers sometimes express frustration that a lawyer cannot say with certainty how a contract term will be interpreted by the court.  Sometimes, this leads to unfavourable comments about the quality of judges and the desirability of replacing them with computers.  Usually such comments (and IP Draughts has heard this type of comment on several occasions) overlook the human element – not just the variability in outlook (and, dare we say it aloud, quality of contractual analysis) among judges, but more importantly the human element in how the parties to a contract behave.  Sometimes, neither party complies strictly with their contractual obligations, and the task of the court is far more complex than just “cranking the handle”.  Issues such as waiver, good faith, misrepresentation, mistake, failure to comply with contractual procedures, variation by conduct, and the rest may have to be considered.  There is also the problem that contracts are based on words, and words can have many subtle or not-so-subtle variations in meaning, depending on usage and context, as the recent criminal trial of John Terry (former captain of the English football team) shows.

Coming back to diagrams, IP Draughts is in favour of anything that may aid the parties’ understanding of their legal obligations.  He sometimes include mathematical formulae in contracts, eg in payment clauses, but has not seen many diagrams being used.  In principle, there is no reason why they should not be used.  If flow charts are used, there may need to be a definition or cross-reference to any protocols that are used in the flow chart, eg as to the significance of the shape of an individual box.  If both text and a diagram are used to cover the same point, the contract should make clear which takes precedence, in case they vary in meaning.


Filed under Legal practice