This article continues a series on the terms that might be included in a commercial code for IP licensing. As explained further in the previous article, the following list is merely for discussion. It tracks the sections of the UK Sale of Goods Act 1979.
- Status of warranties. Unless otherwise stated in the IP licence agreement, no warranties (express or implied, and whether described as warranties, conditions, terms or otherwise) in an IP licence agreement are so fundamental that their breach entitles the non-warranting party to treat the contract as repudiated. [This does not affect a party’s right to terminate an IP licence agreement in accordance with its terms.]
- Implied warranties. Unless otherwise stated in the IP licence agreement, the following warranties are implied for the duration of the licence provided for in the IP licence agreement: (1) that the licensor owns or otherwise has the necessary rights in the IP to grant the licence; (2) the IP is free from any charge or encumbrance not disclosed to or known by the licensee at the time the IP licence agreement is made; and (3) the licensor will not breing any action against the licensee for infringement of any IP other than the licensed IP (“non-licensed IP”) that would be infringed by the making, use or sale of any products or services made under [and contemplated by] the licence. But nothing in this code prevents a licensor from exploiting, itself or through other licensees, any non-licensed IP.
- Rights of a purchaser. The licensor will not bring any action against any purchaser of products or services made under the licence, or against any successor in title of such a purchaser: (1) for infringement of the licensed IP; or (2) for infringement of any other IP owned or controlled by the licensor [and existing at the date of the IP licence agreement]. The provision of sub-section (2) will apply unless the licence agreement expressly draws attention to the existence of other IP that is not licensed under the IP licence agreement.
- No warranty about third party IP. Unless otherwise stated in the IP licence agreement, the licensor gives no warranty as to existence or validity of any third party IP that might be infringed by the making, use or sale of any products or services under the licence.
- No warranty about third party activities. There is no implied term in a licence agreement that (1) either party to it is required to take action against third party infringers of the licensed IP; or (2) either party’s obligations under the licence agreement are affected by the presence of third party infringers in the territory and field of the licence.
- No implied obligation to exploit. There is no implied term in a licence agreement that the licensee is required to use its best endeavours to exploit the licence or to refrain from exploiting any other IP that is not the subject of the licence.
- No warranties about licensee’s products or services. Unless otherwise stated in the IP licence agreement, neither the licensor nor the licensee gives any implied warranty in an IP licence agreement: (1) as to the quality, fitness for purpose, or performance of any product made by the licensee under the licence; (2) as to the quality, care or skill with which services are provided by the licensee under the licence; or (3) as to the safety, legality, compliance with regulations or other characteristics of any such products or services.
- Nature of a licence. Except as may be otherwise expressly provided by applicable IP laws, a licence of IP is a contractual right or permission to use IP within the scope, territory [and other parameters] of the licence. Accordingly: (1) a licence does not create or transfer to the licensee any proprietary right, title or interest in the IP, whether under the laws of personal property, trusts, [mention civil law concepts?] or otherwise; and (2) the grant of a licence does not prevent the licensor from suing the licensee for IP infringement in respect of activities by the licensee that fall outside the scope, territory [or other parameters] of the licence.
- When the licence takes effect. Unless otherwise stated in the IP licence agreement, the licence takes effect on the date on which the IP licence agreement is signed by both the licensor and the licensee or, if they sign on different dates, the date of the last such signature.
- Successors in title. Unless otherwise stated in the IP licence agreement, a licence agreement is binding on any person who derives title to the licensed IP directly or indirectly from the licensor, whether by assignment, operation of law or otherwise, other than a bona fide purchaser of the IP who has no notice, express or implied, of the licence agreement at the time of purchase. For this purpose, registration of the IP licence agreement with a [recognised IP office] will be treated as express or implied notice of its existence and terms.
Sections 11-20 cover a lot of ground. Arguments could be made for different provisions, but the general theme is to avoid having to write terms into the licence agreement to address issues that are unclear under national law or vary between national laws (e.g. whether either party has an obligation to sue infringers).
More instalments of this series will follow in the coming weeks.
Mr Pettifog
Mark Anderson
Paul Maclennan
Stephen Brett
Victor Warner
IP Draughts 
I don’t do a ton of licensing work so this may be an obtuse question. I was wondering what the context of s.13 was, because in my stunted landscape of IP law section 13 either seems unfair to the licensor, or I’m misinterpreting it.
Why would it be a reasonable ‘default’ to prevent a licensor from enforcing its IP if a purchaser, having purchased a good manufactured by the licensee, found a way to exploit the IP in way that breached the licensor’s IP (and presumably also the sublicence)?
If I own IP in a car hub cap, and my licensee makes and sells you a hub cap, the starting point in many countries is that I can’t sue you for using or reselling the hub cap. My rights are exhausted. That may be true even if you use the hub cap as a frisbee and start infringe my other IP in frisbees (not under that name obvsly as it is a trade mark!)
There may be variants on this theme, eg if the sale is made with explicit limits on right of use, but my code is dealing with the basics.
I’m curious about the UK consequences of “repudiation” versus “termination.” I don’t think there really are any under US law.
Thanks, Vance. I’ll give this some further thought and research. Part of my concern is that a court may ignore the termination provisions of the licence agreement (as supplemented by the code) and instead reach for general principles on repudiatory breach. Or that something similar may happen under other countries’ laws. But I need to consider further.
With all your caveats from the prior installment in place, I have the following observations on the current installment:
General comment: since you’ve conceptualized these sections as clauses that apply in default of anything in the license to the contrary, I don’t think you have to keep repeating that concept in all the sections, especially since you don’t repeat it in some of them, leading one to think that these then override the contract.
11. Really? I should think that if the warranty of title fails that ought to put the kibosh on the whole transaction.
12(3) should really be stated as a warranty that there is no other IP of the licensor that would be infringed by licensee’s practice of the IP pursuant to the license (which would then compel the licensor to disclose any it wants to enforce separately).
13(2) would be clearer if you omitted the last sentence and incorporated a cross-reference to 12(3) into the principal concept by way of exception.
15. Pace your comment about exclusive licenses, I’d prefer to see something that makes this applicable only to non-exclusive licenses.
16. Can we avoid the “endeavours” thicket? Can’t you just say that there’s no obligation “to exploit or attempt to exploit” the IP? And then maybe have an exception for cases in which there is a royalty payable on the basis of revenues (in which case the licensee should use “reasonable endeavours” to obtain those revenues).
18. proprietary “right, title and interest”? Lure Mr. Pettifog into another room, then just write it as “proprietary interest.”
20. It might be worth adding that this clause doesn’t preclude licensor liability for failing to notify its assignees of the existing license.
Thanks again Vance for further thoughtful comments.
In brief reply:
general – agreed.
11. Maybe you are right. My instincts are to leave termination as the remedy rather than repudation; the latter may not translate well into other legal systems. But I am open to persuasion.
12(3) It started off this way, but I changed it. The changed way seemed to fit better with 13. But ditto – I am open to persuasion.
13(2) See previous comment. Perhaps I should have changed 13 rather than 12.
15. Arguably the exclusive licensee has the greater interest in bringing proceedings, and under the UK system he has standing to do so in his own name. I am not sure who should be obligated to take action and I am reluctant to incorporate the French system where the licensor may have an implied obligation to do so.
16. First part agreed. Second part, not sure whether this is needed as default. Can’t the parties agree that if needed?
18. Okay. As it is international…
20. Agreed.