This is the third in a series of articles that proposes a set of standard terms for IP licensing as part of a commercial code. When IP Draughts started this exercise, he tried to track the sequence of clauses in the UK Sale of Goods Act 1979 (SGA).
Now that we are in the middle of the SGA, IP Draughts is finding it more difficult to follow the SGA’s sequence of provisions. Contracts for the sale of goods raise some significantly different issues to IP licensing.
Once the exercise is complete, he will review the entirety and may well restructure it. But for now, let’s see where we get to. As before, this is not a finely-honed set of proposed terms. It is just a rough first draft for discussion. Following a suggestion on an earlier list, it is assumed that somewhere else in the code is a general statement that the parties can agree different terms in their licence agreement.
- Improvements and new IP. There is no implied term in a licence agreement that the licensor will communicate to the licensee any improvements to the [subject-matter of the licence agreement] made after the date of the licence agreement. Nor is there any implied obligation to license any new IP created by the licensor in respect of such improvements.
- Dealing with infringers. (1) In an exclusive licence agreement, at the request and cost of the licensee, the licensor shall take, or permit the licensee to take, reasonable action against third party infringers of the licensed IP. Where the exclusive licence is limited by field, such action may only be taken in agreement with the licensor and its licensees outside the field. After deduction of all legal costs, any damages or monies paid in settlement of infringing activities in the licensee’s field will be for the licensee’s account and will be subject to any royalty or other obligations to the licensor as if the damages or settlement payment were the sales revenue of the licensee. (2) In a non-exclusive licence agreement, the licensor has no obligations to take action against infringers and has no responsibility for any losses suffered by the licensee as a result of such infringement.
- Activities by purchasers from licensee. (1) Where a licensee supplies to third parties (“purchasers”) goods or services under an IP licence, whether by way of sale, gift or other permitted transaction, the licensor may not bring action against purchasers or their successor in title (direct or indirect) of those goods or services for infringement of the licensed IP arising from the [legitimate] use of those goods or services. (2) Where any goods and services described in sub-section (1) are sold subject to an express contractual restriction on their use, the provisions of sub-section (1) do not prevent the licensor from bringing action for infringement against anyone who is bound by such a restriction in respect of use that breaches the restriction.
- Independence; third party claims. Where a licensee develops, markets, sells or supplies products or services under a licence, or conducts other activities under a licence, the licensee acts on his own account and not as an agent, representative or partner of the licensor. Accordingly, the licensee must indemnify the licensor in respect of any claims against the licensor by a customer or other person that concern the licensee’s use of the licensed IP, except to the extent (if any) that the claim arises from a breach by the licensor of a term (express or implied) of the licence, or arises from a contractual indemnity given by the licensor to the licensee.
- Good faith. The parties to a licence agreement are under a general duty to act honestly and in good faith in their dealings with one another. The duty of good faith does not imply any prohibition on a party developing or commercialising goods, services or intellectual property that compete with the licensed IP or with goods or services supplied under the IP licence.
- Assignment of licence agreement. (1) The licensor may not assign the licensed IP to a third party except on terms that the assignee agrees to be bound by the licence agreement and perform all of the obligations on the licensor under the licence agreement, including passing on these obligations to its successor in title to the licensed IP. (2) A licence agreement is personal to the licensee, and accordingly the licensee may not assign or transfer any of its rights or obligations under the licence agreement.
- Subcontracting. A party to a licence agreement may subcontract the performance of any or all of its obligations under the licence agreement, provided that such party remains liable to the other party for that performance. Subcontracting may not, however, be used as a disguised way of sublicensing or assigning a party’s rights or obligations in breach of any express or implied terms of the licence agreement.
- Sublicensing. A licensee does not have any implied right to grant sub-licences under the licensed IP. But this provision does not affect the rights of a purchaser as described in [section 23] of this code.
- Duration and termination of licence. There is an implied term in a licence agreement that, unless the licence agreement states when it will expire, an IP licence may be terminated [by the licensee] [by either party] on reasonable notice. This implied term does not affect any express rights of termination stated in the licence agreement such as for breach or insolvency.
- Consequences of termination. Upon termination of a licence agreement, all licences provided for in the licence agreement automatically terminate.
No doubt some of these terms will be thought controversial. IP Draughts is interested to hear readers’ thoughts.
More to follow…