If you are licensing a patent or trademark, these are the essential items that need to be negotiated.
Once general terms have been agreed, a full license can be drafted. During the negotiation, it should be made clear to what extent the deal is subject to completion of a final agreement. Sometimes the parties may specify that nothing is binding until signed. However, it is also possible to negotiate general terms and then have a letter of intent in which the parties agree to work towards a final agreement based on the letter of intent. There are other possibilities, including selling an option to license, and, if a letter of intent is agreed, there can be penalties for backing out of the contract.
- The right granted (make, use and/or, sell, whether sole, exclusive or non-exclusive). In an exclusive license, only the licensee has the right. In a sole license, the licensee and the licensor both have the right. In a non-exclusive license, there can be more than one licensee of the same right.
- Territory and limitations on the scope of the license (Canada, US, parts thereof, world wide, limitations to specific industries or areas of use as applicable)
- The payment (lump sum, advance, royalty, basis of the royalty) and when it is due
- Warranties (ownership, validity, scope, non-infringement) – best to provide no warranties of any kind
- Right to sub-license, whether granted or not, and if granted, what conditions on the grant
- Consequences of breach of warranties – if warranties are given, the remedy should not exceed the amount of the royalty
- Defence of the patent or other right and prosecution of infringers – patentee should have the right to control this
- Ownership of improvements made by each party – open to discussion
- Performance guaranties – if an exclusive license is given there should be performance guarantees. If the performance is not adequate, the licensee should be given a chance to remedy the performance, or lose exclusivity or even the license.
- Duration and termination – open to discussion. May want to terminate license if licensee goes bankrupt or performs an act of bankruptcy or no longer carries on business.
- If a trademark is being licensed, the owner must have direct or indirect control over the quality or character of the goods and services sold or performed in association with the trademark.
- If a patent or other intellectual property right is assigned in a security agreement, additional considerations are:
A. Who pays maintenance fees.
B. Who is in charge of ensuring that the patent keeps the broadest possible coverage, eg through reexamination, reissue, or even ongoing prosecution.
C. The purchaser should covenant not to do anything to harm the patent.
D. The purchaser should be limited in its right to reassign the patent.
E. The Patent Office will register a security agreement, but will not consider it to affect ownership, and will even register subsequent assignments over it and give no notice to the beneficiary of the security agreement. Therefore, the power of attorney to assign the patent may be ineffective. Provisional personal property security acts probably govern the security agreement as well.