Category Archives: Licensing

Licence grant wording: take care over the details

Ken demonstrates the ancient art of invisible cat's cradle

Ken demonstrates the ancient art of cat’s cradle, conceptually, and without the wool

IP Draughts’ favourite commentator on contract drafting issues, Ken Adams, has written an article, Granting Language in Patent License Agreements: An Analysis of Usages. The article has recently been published by Landslide, the magazine of the American Bar Association’s Section of Intellectual Property Law.

It is always interesting to read Ken’s views, particularly when his accompanying blog article issues a challenge to IP lawyers, expressed in Donnesque terms:

IP guys, you are not an island: it’s best to base your contract usages on general guidelines for clear and modern contract prose.

IP Draughts agrees with the sentiment, and with much of what Ken says in the article. That is not entirely surprising: he saw a draft of the article and commented on it. There are, though, a few more IP factors to take into account before reaching any conclusions on the drafting points that Ken identifies – factors that might only be known by an IP specialist.

Cutting to the chase, the article provides “before and after” versions of a typical licence grant clause, the latter being Ken’s approved version. Here is the “before” version:

Subject to the terms and conditions of this agreement, Acme hereby grants to the Licensee, and the Licensee hereby accepts, an exclusive royalty-bearing license under the Patent Rights, with the right to grant sublicenses, in the Field of Use, in the Territory, to make, have made, import, use, have used, offer for sale, sell, and have sold Licensed Products.

And here is the “after” version:

Acme hereby grants the Licensee an exclusive, royalty-bearing (in accordance with section 4.5) license (with the right to sublicense) under the Patent Rights in the Field of Use to make, have made, use, offer for sale, sell, and import Licensed Products in the Territory.

As John Donne nearly said: Every IP lawyer is a piece of the continent, A part of the main. If a clod be washed away by the sea, Europe is the less.

As John Donne nearly said: Every IP lawyer is a piece of the continent,
A part of the main.
If a clod be washed away by the sea,
Europe is the less.

IP Draughts mostly agrees with the latter version, though he would probably make any right to sublicense subject to conditions, which would be set out in a separate clause or section. A cross-reference to that other clause would be appropriate. He would probably not bother to state here that the licence is royalty-bearing, as this means no more than that a contractual payment is due, which can be set out in a separate clause without a cross-reference in the grant clause.

Ken identifies a number of usages in conventional licence grant clauses that are either redundant or sub-optimal. IP Draughts’ brief summary of Ken’s comments, and his response to those comments, follow:

  1. Use the verb grants not licenses. Agreed.
  2. Refer to a licence not a right. Agreed.
  3. Use the expression hereby grants. Agreed.
  4. Don’t say ‘grants and agrees to grant’; the latter is redundant even in the case of future IP. Agreed in the case of licences. There may be some value in the case of assignment, in view of the differing national rules (and different rules for different types of IP within a jurisdiction) on the legal effect of an assignment of future IP. For a discussion of some US issues, see here.
  5. No need to ‘accept’ the licence. Agreed under English law. The advice from the Dutch contributor to our loose-leaf work on biotech transactions was that it was necessary to state that an assignee of IP, or a distributor of products, accepted the IP or appointment, and similar principles are likely to apply to licences. Bearing in mind that many IP licences are international, it may be safer to include some words of acceptance.
  6. Grant a licence, not a ‘covenant not to sue’ or an ‘immunity from suit’. Agreed. For a discussion of covenants not to sue and their usage, see here.
  7. Explain exclusive, sole, etc. Ken makes some subtle points about US drafting practice (eg phrases such as “exclusive, even as to the licensor”) but in the end, his “after” version simply says “exclusive”. IP Draughts’ view is that sophisticated parties are likely to be clear on the meaning of exclusive, but sole and semi-exclusive should be defined. And that if the EU territory is being divided, it would be prudent to be clear on whether sale outside the territory is permitted, and to ensure that whatever is agreed is aligned with EU competition law.
  8. Perpetual, irrevocable. As Ken notes, these terms are not synonyms. A licence could be perpetual, subject to right of early termination. Irrevocable is probably okay as a term in a short licence (if that is what is intended) but ideally the licence would make clear that no form of early termination by the licensor (whether or not properly characterised as revocation) is allowed.
  9. Assignable. IP Draughts shares Ken’s reservations about using the word “assignable” or similar in the long list of adjectives that precede the word “licence”. Instead, address this issue more precisely in separate clauses dealing with assignment and (less commonly) change of control. You may also want to address the question of whether the licensor is permitted to assign the IP that is being licensed, and the consequences for the licence of doing so. Typically, the default position under national patent laws is that a licence registered with the patent office is binding on a future owner, but what is less clear is whether the contract under which the licence was originally granted has any continuing effect. These matters should be addressed explicitly in the licence agreement.
  10. Sublicensing. IP Draughts agrees that the licence should address whether sublicensing is permitted. This is typically a matter for national patent law and the “default” position (ie if not addressed in the contract) varies between jurisdictions. However, if sublicensing is to be permitted, it is usually subject to conditions, eg as to duration, consistency of terms, etc, and those terms should be stated. IP Draughts’ preference is state these things in a separate clause an omit the word “sublicensable” in the grant clause.
  11. Worldwide. IP Draughts understands that, logically, it may be wrong to say a licence is worldwide if the IP is not registered in every country of the world, and of course one should be careful about giving warranties in unpatented territories. Nevertheless, licences are often expressed to be worldwide and usually this will not cause major problems of interpretation.
  12. Royalty-bearing or royalty-free; fully paid-up. IP Draughts can see a point in stating that no payments are to be due (if that is the case) and that a phrase such as “fully paid-up and royalty-free”, while rather jargon-ridden, may the simplest legal shorthand to express the point. He can see no point in stating that a licence is royalty-bearing in the long list of adjectives before the word “licence”. Just have a separate clause dealing with royalties.
  13. Limited licence. IP Draughts agrees that it is unnecessary to say that a licence is limited. The only concern that he identifies with this simple advice is that, particularly for US parties, the Universal Copyright Convention (to which most countries of the world are not parties, preferring the Berne Convention) has, or used to have, a concept of limited licences, which explains why copyright statements referred to limited licences as well as, or instead of, using the phrase “all rights reserved”. Although he is not a US lawyer, he understands that the provisions of this Convention may have been modified in recent years, making these references redundant. No doubt readers who are US lawyers can enlighten us!
  14. Licence to do what? IP Draughts agrees that the licence should state which otherwise-infringing acts the licensee is permitted to do, eg make, use and sell products. He was interested to see Ken’s explanation of why, in light of US law, licence agreements sometimes include a reference to “export”. IP Draughts has found this word problematic in past transactions and usually tries to avoid it.
  15. Subject to the terms of this Agreement. IP Draughts agrees that this expression is probably unnecessary in the grant clause, particularly if a separate termination clause makes clear that on any termination of the agreement, the licence automatically terminates. However, some lawyers clearly have a concern that the licence, once granted, may exist independently of the agreement under which it was granted, as a form of property right. For this reason, IP Draughts has tended to include this phrase, though he is now having second thoughts about its usefulness.



Filed under Intellectual Property, Legal practice, Licensing

‘Easy access’ IP licences – 5 years on

easy access bandagesFive years ago, the University of Glasgow made the startling announcement that it was making some of its IP available free of charge. Its new programme was named ‘Easy Access IP’. Licensees were required to sign a simple, one-page agreement that included a commitment to commercialise the IP.

Glasgow was soon followed by other universities including Bristol and King’s College London. IP Draughts’ colleagues debated this phenomenom in 2011, by putting the cases for and against easy access licensing.

easy access doorsA few months ago, we summarised a report that had been commissioned to take stock of easy access IP after 5 years. The report indicates that a fair number of universities are now using easy access models (whether or not using this name) in a small minority of cases, but only two have made it a large part of their licensing activity. In the words of the report:

The two most active Universities are the University of New South Wales and the University of Glasgow, which are the current and previous workplaces of Kevin Cullen, the driving force behind the original concept for the Easy Access IP scheme. This suggests that strong leadership and an internal champion may be important to drive full exploitation of the approach.

easy access liftsThe report’s ‘key findings’ section stated that:

Two organisations [Glasgow and UNSW] between them have carried out about 66% of the reported Easy Access IP deals.


Kevin has an aura about him

Given how much the phenomenom is associated with Kevin Cullen, IP Draughts was very interested to hear Kevin explain easy access licensing at a recent conference in Ireland where IP Draughts was a fellow speaker. IP Draughts has been sceptical about the idea, but much of what Kevin said resonated with IP Draughts’ views. In particular (and in IP Draughts’ words):

  • the limited resources of university technology transfer (TT) units, and their need to process large numbers of deals, with the resulting risk of doing all of them in a sub-optimal way
  • the limited number of high-value licensing opportunities, which are mostly in the life-science area, and the larger number of small-scale opportunities
  • the tendency to treat all licensing deals in a similar way, based on the high-value model
  • the desirability of conducting a ‘triage’ of licensing opportunities, to put them into the categories of (1) high-value, and worth spending a lot of time on, (2) low-value, and worth spending a little time on, and (3) not worth spending any time on (and should probably be handed over to the academic if they think they can do something with it)

Easy access IP is essentially in the second triage category – worth doing something with, but not high-value IP. A licensing programme that takes a minimum of effort for the TT unit is a good way of handling this category. A simple and uncontroversial set of licence terms is an obvious part of such a programme. Whether it is appropriate to offer the licence without any payment is a judgment call. Kevin and some others think the marketing advantages of doing so outweigh any small loss of revenue.

easy access infoIP Draughts has long thought that TT units should be empowered to say ‘no’ more often to academics, without running the risk of a fire-storm of criticism from the disgruntled academic. Having a system in place that recognises this right and has mechanisms to deal with disagreement from the academic (eg by giving him the IP to make of what he can) would seem to be in the best interests of the university. If this process needs a fancy name, such as easy access IP, to make it ‘stick’ within the university, then IP Draughts is all in favour.

As the above-mentioned report says, there also needs to be a strong advocate for the process. So far, it seems, Kevin has been one of the very few people to make the case with conviction to universities’ senior management.

Viewed as part of a larger strategy for efficient management of university IP portfolios, easy access IP loses some of its shock value, and becomes a more rounded idea. As Kevin has also said, it is important to keep the idea on track, and not let it get corrupted and devalued by inappropriate behaviour.

easy access dingoIn particular, users of an easy access programme should be careful to ensure that the programme is not used as a dumping ground for IP that has previously been offered, without success, as a high-value proposition. Buy-in from the relevant academics is necessary and important – if they don’t like the idea of their IP being put into the easy access category, they should be able to take it over.


Filed under Licensing, universities

Common pitfalls in IP licensing

Neither the sports car nor the young people were in evidence yesterday.

Killashee House Hotel, a good location for an episode of the Avengers (the 1960s version)

IP Draughts spent yesterday on a day-trip to Dublin. To be more accurate, he attended a conference at the Killashee House Hotel in Naas, County Kildare, an hour’s drive from the airport.

He was there as an invited speaker at the Knowledge Transfer Ireland (KTI) conference on Licensing Intellectual Property: Strategies and Pitfalls.

By way of background, IP Draughts and his colleagues at Anderson Law have recently completed a writing project for Enterprise Ireland, an Irish Government agency. The fruits of that

Deirdre Kilroy in the tropical part of Ireland

Deirdre Kilroy; Ireland’s tropical rainforest can be seen in the background

project can be found on the KTI website. They consist of a large set of template agreements and commentary for use by Irish universities and industry. They form part of a public policy initiative of the Irish Government, set out in a document called Putting Public Research to Work for Ireland. Support on Irish law aspects of the project was provided by Deirdre Kilroy and her team at LK Shields, an Irish law firm.

The materials were commissioned by KTI’s Director, Alison Campbell OBE, PhD, who is well-known in the UK knowledge transfer community. Alison also organised and led the conference.

Alison Campbell is doing something funny with Richard Bruton T.D. Ireland's Minister for Jobs, Enterprise & Innovation

Alison Campbell doing something funny with Richard Bruton T.D. Ireland’s Minister for Jobs, Enterprise & Innovation

The conference brought together about 160 specialists in technology transfer. It seemed as though most of the Irish KT community was present in the room, as well as representatives from Irish companies, both large and small.

IP Draughts spoke on the subject of common pitfalls in IP licensing. He described, in a suitably anonymised way, some of the problems that he had encountered in licensing deals between universities and industry, and how they might be avoided or resolved. His examples included the following:

  1. Wrong type of transaction. Why assigning IP to a company, rather than licensing it, can cause difficulties, particularly if there are ongoing financial obligations such as royalties, and if the IP owner goes into liquidation and sells on the IP to a company that declines to pay the royalty. And why granting exclusive licences to several companies in different fields can cause problems if the fields are too close to one another. KT professionals should apply common sense to field definitions and not rely too heavily on academics telling them that field A is clearly different from field B.
  2. Mismatch of expectations. How companies and universities sometimes approach licensing transactions with a completely different set of expectations and assumptions. Companies sometimes assume that a licensing deal involves them “buying” an asset that they will be free to exploit as they see fit, and expect the asset to be “clean”, eg free from IP infringement, and the seller to take some legal responsibility for the asset that they are selling. Whereas a university may assume that it is granting limited rights to a company to enable the fruits of academic research to be put into the public arena, and that it is entirely proper for the university as a public body to avoid all risks and costs associated with the grant of those rights, while at the same time retaining some legal controls to ensure that the IP is commercialised in an appropriate way. How communication of objectives at the outset may reduce the scope for misunderstanding and frustration.
  3. Wrong mindset for negotiating deal. How both universities and companies can get reputations for being “difficult” and IP Draughts’ experience of the same concerns being expressed by both industry and universities. The importance of professional negotiations, and the need for training for academics, and perhaps senior management of universities, in how to conduct themselves in negotiations. Not allowing back-channels of communication between the company and academic, and through the academic to the university’s senior management, that undermine the work of the KT professionals. How to steer a middle ground between saying no to everything (which inexperienced negotiators sometimes do) and saying yes to everything (which senior management and academics sometimes press the negotiator to do, through lack of understanding of the issues).
  4. Locked into a long-term, loveless relationship. How parties sometimes shun discussion of how they will “divorce” at the time of negotiating their agreement, and why it is important to have a “prenup”. In particular, why it is important to have clear performance and reporting obligations, termination rights for non-performance, a mechanism for resolving disputes over performance, and clear set of obligations on termination.  Also, why it is important to handle “exit” negotiations with a licensee in a professional manner to avoid delays and loss of patent life and secure appropriate compensation for early termination.




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Filed under Intellectual Property, Licensing

Post-expiry royalties: what’s the problem?

weirdThere are some weird terms in US licence agreements. Let’s leave aside the general peculiarities of US contract wording. Examples such as “indemnify, hold harmless and defend”, “represents, warrants and undertakes”, “successors and assigns”, and a host of other excrescences, appear in many types of commercial agreement and not just IP licences. Instead, let’s focus on wording that deals with the duration of royalties in licence agreements. This issue came into sharp focus last week, with the decision of the US Supreme Court in the case of Kimble v Marvel Entertainment, LLC.

More on that case later. The general issue, in the US and internationally, is whether it is appropriate to require a licensee of IP to pay royalties after the IP has expired, been revoked, or otherwise ceased to exist. A generation or two ago, there seemed to be a consensus among legislators and the courts that it was not appropriate. This attitude could be seen, for example, in:

  • the US Supreme Court case of Brulotte v Thys Co, a 1964 decision that was discussed and followed in the Kimble case linked above. In Brulotte, the court decided that a contractual obligation to pay patent royalties after the patents had expired was “unlawful per se“.
  • the UK Patents Act 1977, which included a provision in section 45, since repealed, that: “Any contract for the supply of a patented product or licence to work a patented invention, or contract relating to any such supply or licence, may at any time after the patent or all the patents by which the product or invention was protected at the time of the making of the contract or granting of the licence has or have ceased to be in force, and notwithstanding anything to the contrary in the contract or licence or in any other contract, be determined, to the extent (and only to the extent) that the contract or licence relates to the product or invention, by either party on giving three months’ notice in writing to the other party.”
  • the 1984 EC Block Exemption Regulation for patent and know-how licences, which black-listed a provision whereby: “the licensee is charged royalties on products which are not entirely or partially patented …without prejudice to arrangements whereby, in order to facilitate payment, the royalty payments for the use of a licensed invention are spread over a period extending beyond the life of the licensed patents …” Recital 22 to the Regulation clarified that this spreading of payments referred to “spreading payments in respect of previous use of the licensed invention” – ie use during the period when the patents were in force.

A possible solution to this issue is to grant a mixed patent and know-how licence, in which royalties can be charged for use of know-how in circumstances where there are no patents, eg because they have expired or not been applied for in a particular country.

While this solution may work in many countries, there has clearly been a strand of opinion that, in the USA, a more nuanced approach to royalty terms is required. It seems to be thought by some that the licence agreement should state separate royalty rates for use of patents and for use of know-how. Presumably this makes it easier to show that there is no disguised patent royalty after the patents have expired. This approach is consistent with a comment from Kagan J in the Kimble case. She said:

That means, for example, that a license involving both a patent and a trade secret can set a 5% royalty during the patent period (as compensation for the two combined) and a 4% royalty afterward (as payment for the trade secret alone).

IP Draughts has seen some very strange royalty terms that try to finess this issue, eg providing separately for X% for use of patents and another royalty of X% for use of know-how, but stating that for as long as both patents and know-how protect the product, only the patent royalty applies. After the patent expires, only the know-how royalty of X% applies. Hey presto, X% applies both before and after the patent expires! IP Draughts has severe doubts about the effectiveness of this type of legal engineering.

More conventional, in IPDraughts experience, is a clause that sets the royalty at X% and reduces it to 50% of X in any country where there is no valid patent.

Ley lines

Ley lines

IP Draughts’ impression is that economists and competition (or in the USA, antitrust) authorities are no longer as concerned about post-expiry royalties as they once were. For example, the European Commission’s 2014 Guidelines on Technology Transfer Agreements state, at paragraph 187:

Notwithstanding the fact that the block exemption [for technology transfer agreements] only applies as long as the technology rights are valid and in force, the parties can normally agree to extend royalty obligations beyond the period of validity of the licensed intellectual property rights without falling foul of Article 101(1) of the Treaty. Once these rights expire, third parties can legally exploit the technology in question and compete with the parties to the agreement. Such actual and potential competition will normally be sufficient to ensure that the obligation in question does not have appreciable anti-competitive effects.


In Kimble, the parties had settled patent litigation on terms that the inventor, Kimble, assigned a patent to Marvel in return for royalties. The parties set no end-date for the payment of royalties. Some years later, Marvel “stumbled across Brulotte” and sought and obtained a declaratory judgment that it could cease paying royalties at the end of the patent term. On appeal, the Supreme Court upheld the award of the declaratory judgment. In passing, one wonders how such a defective settlement agreement could have been drafted. Presumably the parties were advised in their patent litigation and settlement negotiations by lawyers who held themselves out as specialists in US patent law.

The majority of the justices in Kimble appeared to recognise that the current thinking of economists (and therefore antitrust authorities) does not object to post-expiry royalties. As the majority judgment put it:

A broad scholarly consensus supports Kimble’s view of the competitive effects of post-expiration royalties, and we see no error in that shared analysis.”

However, that consensus was irrelevant, according to the majority, as the issue before them was one of interpreting statutory patent law, and not antitrust law. The Supreme Court was bound by the principle of stare decisis to follow the decision in Brulotte. If the case had been properly considered as an antitrust case, they might well have been prepared to decide Kimble differently.

IP Draughts found this part of the Kimble decision surprising. Though he has no expertise in US laws, he had always understood the general issue, at least as it is understood in the UK and Europe, to be one of competition (antitrust) law.

The 3 minority justices in Kimble also saw things differently. They commented that the earlier Brulotte case “was an antitrust decision masquerading as a patent case”.

stare decisisGood old stare decisis. IP Draughts remembers being taught about the English version of the rule in his first term as an undergraduate law student, in 1979. Courts are sometimes bound by earlier court decisions on points of law. The English rule is not so constraining as the US one, it seems. The UK House of Lords (now the UK Supreme Court) simply announced in 1966 that it would no longer consider itself bound by its previous decisions.

IP Draughts is left feeling perplexed by the decision in Kimble. It is concerned only with a narrow point on the duration of patent royalties. But on that narrow point, US licensing practice and to some extent (because of the strong, international influence of the US) non-US licensing practice, is frozen in time by the opinions and decisions of an earlier generation of US judges. It matters not whether the decision is based on statutory interpretation or antitrust laws, the practical effect is the same.

Practitioners advising on licence agreements that have a US element to them must consider carefully how the royalty duration is expressed. Many of IP Draughts’ licence agreements provide for royalties to be paid, on a country-by-country basis, for the longer of (a) the duration of the licensed patents, or (b) in the case of know-how, for a period (often 10 years) from the first commercial sale of licensed products. At first glance, this would appear to address the issue. What is troubling IP Draughts is whether the agreement needs to go further, in light of this US case law, and have separate royalty rates for patents and for know-how, as some US templates for patent licence agreements seem to prefer. Readers – do you think this is necessary?





Filed under Contract drafting, Intellectual Property, Legal Updates, Licensing