5. Obligations. In order for the parties to be happy during the course of performance under the agreement, each party must tailor their behavior to conform to the other party’s expectations. Thus, besides the transfer of IP rights, the agreement must clearly set forth the respective obligations of the parties so that no side becomes disappointed with the other side’s behavior. Such expected behaviors include the obligation to: keep certain records, give written notice of certain events, prepare reports, obtain regulatory approval, purchase insurance, perform certain R&D, provide and update data, provide technical assistance, pay government fees such as taxes and IP-related maintenance, renewal and annuity fees, enforce the licensed IP rights against third-party infringers, mark products with certain IP-ownership notices, etc.
6. Dates. It is important that the agreement clearly sets forth all dates (e.g., the effective date, expiration date, etc.) and time periods (with clear triggering events) for each party’s respective obligations (e.g., deadlines for making payments and delivering royalty reports, data, prototypes, etc.).
7. Newly-Created IP. While the agreement should obviously specify the parties respective rights to existing IP, the allocation of rights to future IP that may be created during the course of performance under the agreement is often overlooked. That is, the licensed IP may be modified, enhanced, improved and/or derivative works created therefrom by the licensor and/or the licensee. Who owns such new IP? Are they automatically included in the original license grant or does that trigger the need for additional compensation or negotiations? Further – especially when such new IP is jointly created by the parties – who pays for and controls decisions regarding securing IP protection and who is responsible for enforcing such new IP? Jointly owning newly-created IP sounds like a fair and simple solution to the issues raised by these questions. However, what happens when the relationship sours (i.e., the agreement terminates) or runs its course (i.e., the agreement expires)? The IP is still jointly owned and the parties’ fate with respect to licensing and enforcing the IP is still tied to each other. Therefore, when negotiating the term sheet, don’t let the concentration on the existing IP that is driving the deal be accompanied by a neglect of future IP. They both should be addressed, especially given the fact that newly-created IP can sometimes turn out to be more valuable than the IP existing at the time the agreement was first entered into.
8. Indemnifications. If the licensee makes a product using the licensor’s IP which turns out to be defective, who’s responsible for any product liability or personal injury claims? Does the answer change if the licensee modified the IP in the process of producing the defective product? What if the licensed IP infringes a third party’s IP? What if a third party sues because one of the parties to the agreement fails to perform one or more of its obligations? The agreement must allocate these risks in terms of indemnifications (i.e., where one party holds the other party “harmless” and agrees to pay for all court costs, attorneys’ fees and judgments for certain types of claims). Even if one party agrees to indemnify the other party, who controls the defense strategy and who decides when to settle? Simply put, your agreement must address these questions.
At the end of the day, any IP-related agreement must answer the “what if this happens” questions raised by the parties’ contemplated relationship. While no agreement can answer all the “what if’s,” a properly drafted one will anticipate those that are most probable. The considerations presented in this post will help start your thinking about IP-related agreements, but do not substitute for quality legal advice that is tailored to your company’s unique situation.
