copyright 2008 the prinz law office.1 getting started with drafting a license agreement: a brief...

Copyright 2008 The Prinz Law Office. 1

Getting Started with Drafting a License Agreement: A Brief Guide to the Elements

and Key Considerations

By Kristie D. Prinz

Founder, The Prinz Law Office


Elements of the License

I. Defining the Intellectual Property What rights are to be licensed? Will the license be exclusive or non-exclusive? What uses of the Intellectual Property are permitted/

prohibited? Can the licensee grant sublicenses? Is the license limited to a particular territory? Does the license extend to improvements?

Should the license be limited to a particular field of use?



II. Defining the Term of the License Grant Is the license perpetual? Does the license last until the expiration of the

underlying patent? Is the license for a fixed period? Can the license be renewed?



III. Defining the Payment Terms Will the payment be up-front, by installments, or on

an annual or other periodic basis? By milestones? Will the payment be in the form of a fixed or flat fee

or on a royalty basis? If payment is by royalty, is that royalty based on the

standard Net Sales term or on some other basis?



IV. Defining How the Intellectual Property will be Protected Which party will control the patent prosecution

and maintain the patents? Does the other party have the right to step in

and take over prosecution and maintenance if the other party declines to do so?



IV. Defining How the Intellectual Property will be Protected Which party will bear the responsibility for

litigating against infringers? Does that party have control over the litigation

decisions? How will any settlement proceeds or judgment

awards be distributed?



V. Allocating the Risks What happens in the event of a termination by either

party? A breach by either party? What is the licensor’s obligation to the licensee in the

event a claim of infringement is brought by a third party? Licensee’s obligation to licensor if a licensee action triggers the third party claim of infringement?

What steps, if any, do you want to take to protect against a bankruptcy by either party?

Do you want to cap the total liability?



VI. Resolving Disputes What governing law applies? Do you want to resolve licensee-licensor disputes by

litigation? Or by mediation/arbitration? If so, where should such proceeding take place and if mediation/arbitration, what rules will apply?

If the licensee challenges the validity of the underlying intellectual property, what consequences should apply?

Who bears the costs of any dispute resolution procedure?


Key Considerations in Licensing

I. Establishing that the Intellectual Property to be Licensed Meets Requirements Is there satisfactory proof that the licensor owns the

intellectual property? Is there a clean chain of title? Are assignments and other agreements transferring rights in order?

If the intellectual property to be licensed is a patent, does it cover what you need it to cover? Is it pending still? If so, what happens if the patent is never granted?

Is the proposed scope of the license grant adequate to provide the rights sought? Is the grant clearly defined?



II. Assessing the Clarity of the Payment Terms Do the payment terms require clarification to

understand? Are royalties based on a standard definition like

“Net Sales”? If not, can the definition applied be easily understood?

Are milestones defined very precisely? Have you provided for royalty audits? How are

overages/shortages being dealt with?



III. Risk Planning Have all potential issues that could cause either party to

terminate been anticipated and addressed? Is the termination clause clearly drafted and does it address

what obligations remain and end at termination? Have you considered what would likely happen upon bankruptcy of either party?

Have you addressed limitation of liability? Indemnification? Have you agreed on how disputes will be resolved?


CONTACT INFORMATIONKristie D. Prinz, Founder

The Prinz Law OfficeP.O. Box 1594

Los Gatos, CA [email protected]

www.prinzlawoffice.comPhone: 408.884.3577 Fax: 408.317.0316

copyright 2008 the prinz law office.1 getting started with drafting a license agreement: a brief...

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