Warranties in a license agreement

popularPay attention, class! IP Draughts has been looking at the most popular search terms that have led readers to this blog. Over the last year, 121 people have found the blog by searching for “warranties in a license agreement”.

Of course, this blog has discussed IP warranties many times since it started in 2011. Here are a few instances:

Warranties of IP validity: a “no-brainer”?

Warrant only facts (not law or opinion)

https://ipdraughts.wordpress.com/2019/01/14/implied-terms-in-ip-licensing-items-11-20/

In IP Draughts’ experience, there is no standard set of warranties in a licence (or license) agreement. Partly, this is because there are many types of licences, eg life science or IT, early stage or late stage, B2B or B2C, licensing to an investor-driven vehicle or a company specialising in the area of business that is the subject of the licence, and so on. Each type tends to have different warranties.

In the absence of express warranties in a written licence agreement, the law of the contract may impose implied warranties. This will vary significantly between jurisdictions – to generalise, civil law jurisdictions tend to imply more obligations than common law ones. And the law in each jurisdiction may be a bit vague on what warranties should be implied – there isn’t always sufficient case law to know for certain what terms should be implied. This causes drafters to focus on stating explicitly what is not warranted. For example, IP Draughts’ template licence agreement includes the following text:

  • the IP Company does not make any representation nor give any warranty or undertaking:
    • as to the efficacy or usefulness of the Patents or Know-how; or
    • as to the scope of any of the Patents or that any of the Patents is or will be valid or subsisting or (in the case of an application) will proceed to grant; or
    • that the use of any of the Patents or Know-how, the manufacture, sale, or use of the Licensed Products or the exercise of any of the rights granted under this Agreement will not infringe any other Intellectual Property or other rights of any other person; or
    • that the Know-how or any other information communicated by the IP Company to the Licensee under or in connection with this Agreement will produce Licensed Products of satisfactory or merchantable quality or fit for the purpose for which the Licensee intended or that any product will not have any latent or other defects, whether or not discoverable; or
    • as imposing any obligation on the IP Company to bring or prosecute actions or proceedings against Third Parties for infringement or to defend any action or proceedings for revocation of any of the Patents; or
    • as imposing any liability on the IP Company in the event that any Third Party supplies Licensed Products to customers located in the Territory.

4 Comments

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4 responses to “Warranties in a license agreement

  1. M, we may be furiously agreeing. But let’s take an example. Is there an implied warranty that use of the licensed IP by the licensee will not result in infringement of third party rights, eg (a) a patent owned by a third party, or (b) a third party who can claim to be a co-inventor and therefore co-owner of the licensed patents? I’m not sure how you make this point clear without saying explicitly whether such a warranty exists or is denied.

    Without further information, under English law I would say the answer to that question is no to (a) and yes to (b). But further information might change the answer. Eg if it is a end-user licence of software, it is common to include express warranties of non-infringement, and this might influence some judges as to whether a term should be implied. And even if the court’s answer to (a) would remain no, the licensee may consider themselves hard done by, and argue the point. And when I draft that agreement, I may not know what governing law the parties agree during negotiations. If we end up with French law, a court might more readily imply a term. So for various reasons I think the disclaimers are useful.

  2. Express and implied warranties are *in* the contract. Disclaiming warranties that the contract expresses or implies sets up an internal conflict. If the contract neither expresses nor implies warranties, the disclaimer is surplusage (belt and braces drafting?). If the contract does express or imply warranties and also purports to disclaim them, it’s not immediately apparent which would prevail.

    I recognize a ‘shadow’ category of contract language, language of lack of (or boundaries of) obligation, by which parties make clear what duties they are not undertaking (or the boundaries of the duties they are undertaking), but if the duties actually undertaken are clearly expressed or implied, disclaimers of other duties should rarely be needed, and surely not template material. (I freely admit I may have missed some important aspect of the matter.)

    • Whether terms are implied may be (a) a general implication in all contracts of that kind (eg by statute or case law), or (b) a matter of interpretation of the individual contract. It is up to the court to imply terms as by definition they are not expressed in the contract. It seems to me unobjectionable for the parties to expressly agree (and thereby tell the court) that certain terms will not be implied, unless there is some public policy reason why they can’t so agree.

      • I’m not sure I differ much, but I would say it differently.

        Express and implied provisions both arise from the contract, express ones directly and implied ones indirectly. Provisions inserted willy-nilly by statute or caselaw are not truly “implied,” but imposed. They are external rules of law that the parties can sometimes disclaim, sometimes not. When permissible, disclaimers must sometimes meet certain requirements (eg conspicuity) to be valid.

        The drafting task, in my view, is not coming up with a way to ‘tell the court that certain terms will not be implied’. Rather, the task is twofold:

        First, when the parties want to disclaim an externally imposed rule that is disclaimable, to choose words that effectively do so under applicable law.

        Second, when the parties want no one to misread the contract to imply that a party is taking on a duty the parties do not intend that party to take on, to make the statement of intended duties so clear that misreading is unlikely. This would be the norm.

        Only when such clarity is for some reason not to be had does prudence calls for a fallback disclaimer spelling out duties a party is not taking on by implication or otherwise.

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