Fans of the Harry Potter books and films will be familiar with the strange world of the Ministry of Magic, which is both a building and a set of serious, powerful witches who purport to run the country.
Last week, IP Draughts had an appointment at the UK Ministry of Justice. It was only after he left that the similarities with the fantasy world of J K Rowling became clear.
Several aspects of his visit were weird. First the address, 102 Petty France, which is strange enough by itself. Then the reception process, where IP Draughts was challenged repeatedly on whether he had an appointment (he did) and was told that the person he was due to see was on holiday that day (he wasn’t). It felt like the security guard was waiting to see whether IP Draughts’ magic potion would wear off under cross-examination, and he would then be revealed to be an impostor.
When, eventually, he was allowed to have a badge and to go through the security process, there was a large queue of people waiting to pass through small glass pods into the secure area. IP Draughts was reminded of the queueing process to get into the Ministry of Magic. Let us just say that people were flushed after that experience.
My article, Documenting Death is in a Time Warp, has now been published by the Law Society Gazette.
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…
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.