All About Intellectual Property Contracts (Part 1)
You have a new idea for a product or service. You have also found the perfect business partner–someone with capital and quality connections to take this idea to the next level. All you need is a formal, licensed agreement. Some might ask, how hard can it be? More difficult than you think, but much easier if you set time aside for preparations prior to beginning licensing negotiations. When it’s time to license your idea, first invest some efforts in preparing to license wisely.
Before conducting any licensing negotiations, consider the following.
- Conduct Internal Due Diligence with Your Legal Staff on Your Rights and Filings. Particularly with regard to patents and trademarks, conduct your own internal review to make certain that all the paperwork is in order before you commence any licensing negotiations. Do you have all of the documents from all of the contributors to the IP? Do you have up-to-date files and electronic evidence of the filings with the U.S. Patent and Trademark Office (USPTO)? Do you have all of the necessary underlying licenses for the tools and software that are used in your proprietary process?
- Research your Potential Licensee Before You Negotiate. Before you negotiate, know with whom you are negotiating. An IP license is likely to be a long-term relationship, and no amount of legal handiness can protect you from an unfaithful business partner. Conversely, successful licensing can be mutually beneficial to both companies.
- Protect Yourself with a Nondisclosure Agreement Before the Negotiations Begin. If the potential licensee refuses to sign a standard two-way nondisclosure agreement before negotiating license terms, please review the previous bullet again.
- Think Like a Licensee. Figure out why the potential licensee of your IP is courting you and is interested in your IP. Figure out how much value your IP is bringing to the potential licensee. Then consider what the licensee has to offer you and what it is going to take to maximize what the licensee is willing to pay you.
Make sure you and your lawyer have thoroughly reviewed what is covered under the license. This will ensure that it covers only those things that you intend to be licensing.
Be specific in negotiating the separate aspects of the license grant, such as whether the license is exclusive or nonexclusive, its territory and its scope.
Follow your attorney’s advice and choice of law clauses to ensure that each party is discouraged from commencing litigation without trying to work matters out first, but is not deterred from bringing a suit when one ought to be brought because it would be inconvenient or expensive to do so.
In the indemnification area, a party should not have to pay for what it cannot control.
The termination provision should have different periods before the other party may terminate for different events. The termination provision should also deal with what happens with the IP after termination. Some obligations should stop, but others must survive.
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