Technology Licensing is a very broad term but the concept is very simple – under any license, one party, usually the owner or developer, (“Owner/Licensor”) grants another party, the customer or licensee (“Customer/Licensee”), certain specified rights. These rights grant the licensee the legal right to utilize the licensed property in a particular manner (i.e. internal use, scope) for a certain period of time (Term). Generally the Owner/Licensor reserves all other rights in that property to themselves, such as the copyright, patent, trade secrets or trademarks or logos included in or delivered with the licensed work. As you might understand, there are a wide variety of other facts that are related to that license, for instance:

• Naming the creator, developer or authorized publisher of the work (“Licensor”), and
• Naming the party that has legal right to the use the work (“Licensee”) work; and
• Formal definition or description of the work Licensed

If you are a product owner or potential product customer, it is recommended that you become familiarized with these general terms and concepts concerning technology licensing. Here, we will discuss a few of the essential elements generally required in a standard licensing agreement. We will also go into some of the most frequently asked questions with respect to technology licensing. Additionally, however, it is recommended that you seek the legal counsel of a qualified attorney for tailored information with regard to what type of agreement you should have.

Essential Elements of a Licensing Agreement

A majority of licensing agreements will have standard clauses that cover issues that could arise in licensing negotiations. A few of these clauses could include, but are not limited to, the following:

The Contract’s Time Period – licensing agreements generally have a starting date and a closing date, these are called term licenses, because your right to use the software is limited to that stated term. It is important to include specific terms such regarding renewal, does the licensor provide advance notice of pending expiration, is a renewal term presumed, and if a renewal will be available will that also specify the renewal license fee? In years past most software licenses were perpetual, and that structure required that the customer/licensee might contract for software updates and software maintenance  separately from the license itself, this perpetual license structure is still used with software like your windows operating system, but generally is far less common with applications. Terms

Contract Dispute Resolution – For the most part, this is a clause that is standard in a majority of contracts. Here, the terms discussed will include how a disagreement should be handled between the parties involved. When discussing a resolution, a majority of contracts will determine whether the parties will need to settle the disagreement in court or arbitration. There can be pros and cons to arbitration it depends upon your specific circumstance.

Product Exclusivity – Depending on the type of license, some licenses hold more value if they are provided to one specific organization. This sort of term is sometimes offered in a software development context where the customer/licensee is paying for all of the development work and it is particularly true if the property is unique. When the license is given to only one party, this licensee will usually pay more for the exclusivity. Here, the licensor will need to decide if the invention will generate more revenue as an exclusive product or non-exclusive product.

Product Oversight – Licensors need to protect their trademark, brand, and innovation. Allowing another party the opportunity to use the license can be risky since the licensee’s actions could cause irreversible damage to the licensor’s brand. In order to protect against this, the contract could call for a product oversight, where an absence of quality control could cause a breach in the contract.

Quality Control – A second facet of product oversight is quality control. Here, the licensing agreement could call for the licensee to demonstrate that their company honors the standards of the product licensing agreement.

Scope of License – The license should extend to the documentation and any future software updates.

Technology Licensing – Important Differentiation

When it comes to technology licensing agreements, there are many other important factors that must be taken into account. These are concisely expressed below:

Product Warranties – Prospective licensees should demand that the property owner provide a degree of representation and warranty in the contract. This should also require that the Licensor remedy software defects found within the warranty period. IN addition to the software functionality you will need to consider representations (like the licensor has sufficient right to license the software) and warranties (that the parties warrant they are valid corporate entities with appropriate authority to enter the license).

In the event that the product does not meet these representations and warranties, there may be a contractually documented process for the Customer/Licensee to make a claim that the product is defective; and 2) a commitment by the Owner/Licensor to correct the defective work, usually at their own expense for a limited period of time (the warranty period).

If you are considering the purchase of a SaaS product you should read my article Warranty vs. SLA/Maintenance.

So effectively, we grant a license anytime we wish to authorize another party to use our property but not actually convey ownership and title of that property to that other party.

Non-Disclosure Agreements (NDA) ­– In a license, NDAs authorize the recipient to use the confidential information for a specific purpose over a predisposed length of time, provided that the licensee protect the information in the manner stipulated in the agreement. The NDA requires that the recipient use a stated standard of care to protect the confidentiality of the product and only disclose that confidential information to those with a need to know. There are often a set of exclusions that help protect the party receiving data; i.e. for things they previously knew, things they independently discovered, or perhaps things disclosed separately to them by a 3^rd party. NDAs most ofte require the return or distruction of the confidential information disclosed at the end of the NDA’s term.

Obtain the Support of an Experienced Technology Licensing Agreement Attorney

There are many other sorts of licenses that you may have heard of, such as Reseller License Agreements, Managed Service Provider Agreements, trademark license etc. The general concepts used in those licenses are substantially similar to the concepts presented above.

If you are a product owner or a potential product customer, you should consider seeking the legal advice of a skilled attorney who has experience in licensing agreements. Technology licensing agreements are multifaceted and can be considered meaningless if they do not include the necessary elements.

Attorney John P. O’Brien has over 30 years of dedicated experience in technology licensing. He has a successful track record in helping clients craft a license that is appropriate for their intended use. A license is like a bridge, and you do not want to transfer rights under a poorly conceived license. When done incorrectly, the results could have serious and unintended negative consequences in the long-term rights and liabilities for that intellectual property.