Licence agreements - what to watch out for?

Trademarks, copyrights, patents, know-how - "IP rights" of all kinds are important economic assets. If they are not only to be used by the company itself, but also to be exploited profitably by third parties, legal protection through a corresponding licence agreement is virtually indispensable.

Through a licence agreement, the holder of a right enables third parties to use its intellectual property in a way that is otherwise reserved for it alone. At best, this creates a win-win situation: while the licensee can use and commercialise the result of a third party's intellectual creation, the licensor is pleased about the further dissemination of its creation and corresponding licensing income.

Georg Lecheler explains which aspects must be taken into account when concluding a licence agreement and how to strike a balance between the interests of the licensee and the licensor.

Content of the licence agreement

Through the licence agreement, the licensor allows the licensee to use its "intellectual property". In return, the licensor usually receives a licence fee. In addition to patents, trademarks, designs or utility models, licensed assets can also include many other things, such as copyrighted works, but also know-how such as recipes, procedures or the like.

The extent to which use is permitted can be individually defined by the contracting parties in the licence agreement. A restriction of use in terms of time, geographical scope and content is possible. The latter in particular can be regulated in quite a complex manner. If the licensee exceeds this framework, the licensor can take legal action against it in the event of a dispute, for example by means of injunctive relief or claims to information and damages - in other words, it is able to protect itself. The parties are advised to agree on the following central aspects in the licence agreement in as much detail as possible and to clearly define limits:
 

• clear information about both contracting parties (disagreements often already arise in this connection)
•  subject matter of the licence - this is not so easy, especially in the case of non-registered IP rights such as copyrights and know-how;
• licence type and scope of use (including licence territory, licence period, market segments, here the devil is in the details), if applicable regulation on the admissibility of sub-licences;
• licence fee, e.g. in the form of a flat-rate licence fee, turnover-based licence fee, per-unit licence fee or minimum licence fee (calm consideration and close scrutiny is advisable when formulating the licence basis as well as the calculation and invoicing);
• possibility of asserting rights (in case of infringement by third parties)
• quality assurance
• possibility of termination (and the subsequent winding-down of the contract, which is often forgotten).

Licence type 

When granting a right of use, a distinction is made between different types of licences.

An exclusive licence grants the licensee the sole right to use the intangible asset, while the licensor may not grant any further licences and often also no longer uses the asset itself. Unless otherwise agreed, the licensee then also has the possibility of granting sub-licences.

The granting of a simple licence, on the other hand, has less drastic consequences for the licensor. The licensor retains the right of use alongside the licensee and can grant licences to others.

Which type of licence is the most suitable depends largely on the project and the subject matter of the licence.

Contract negotiations

A stable and long-term licensing relationship is created when both sides have a good understanding of their own and the other side's position and make a corresponding effort to include and regulate, or at least address, not only the particularly important issues but also the potentially contentious issues in the contract.

This often requires a special combination of economic understanding, willingness to negotiate and negotiating skills. Licensees and licensors should therefore be clear about which interests and goals they want to pursue with the licence agreement and where compromises can be made even before the contract negotiations begin. Besides a collaboration or the maximisation of profit, the opening up of new markets or the resolution of conflicts can also be a reason for concluding a licence agreement.

Contract terminatio

Even a particularly beneficial contractual relationship usually comes to an end at some time or other - in the case of IP rights this is often already due to the fact that many of them do not exist forever, but only grant a temporary exclusive position.

Although often considered somewhat conflictual and counterproductive during the preparation and at the beginning of the collaboration as a "joint project", it is advisable to also give some thought to the end of the contract right at the outset. Otherwise, disputes can arise, for example about rights to return or sell off goods, transition options and generally the winding-down of the contract upon its termination. This often not only leaves a bitter aftertaste, but sometimes casts a shadow over the entire business relationship. On top of that, there is the threat of considerable costs and trouble. “Quidquid agis, prudenter agas et respice finem", as the Latin expert would say – otherwise you are left with nothing but "coulda, woulda, shoulda".

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