Best Practices in Licensing
Diane M. Reed
Knobbe, Martens, Olson & Bear
Rouz Tabaddor
Vice President, Chief IP Counsel
Corelogic Information Solutions, Inc.
Who is the Licensee?
 Defining the licensee
 Affiliates?
 Subsidiaries?
 Sublicensees
 Patent License
 Trademark License: quality control
 Software License Open Source issues
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© 2011 Knobbe Martens Olson & Bear LLP
Who is the Licensee?
 Limiting Assignment of the Licensed IP
 Licensee shall not grant, assign, sublicense or
otherwise convey or transfer … without Licensor’s
prior written consent and any attempted transfer or
assignment shall be null and void.
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© 2011 Knobbe Martens Olson & Bear LLP
Who is the Licensee?
 Limiting Assignment of the Licensed IP
 Except in connection with the sale or all or
substantially all of the assets or business of Licensee,
Licensee may not assign or transfer … without
Licensor’s prior written consent.
Who is the Licensee?
 Limiting Assignment of the Licensed IP
 Licensor grants to Licensee a non-exclusive, nontransferable (except in conjunction with the sale of all
or substantially all of Licensee’s business and assets
related to the Project), non-sublicensable, perpetual,
irrevocable, right and license to….
Who is the Licensee?
 Change in Control

Right to terminate for no cause

Specific termination right:
• Triggered by any change of control
• Require notice
• Licensor can terminate
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© 2011 Knobbe Martens Olson & Bear LLP
Who is the Licensee?

Right of First Refusal
• To acquire the Licensee
• To buy back the License
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© 2011 Knobbe Martens Olson & Bear LLP
Best Practices To Monitor Performance:
 Monitoring the Licensee’s Performance
 Paying on all Licensed Products?
 Accurate royalty statements?
 Are expenses properly deducted?
 Complying with territorial restrictions?
 Complying with market limitations?
 Selling competitive products?
 Properly using trademarks
 Using proper patent marking
 Sublicensee compliance?
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© 2011 Knobbe Martens Olson & Bear LLP
Best Practices To Monitor Performance:
 Typical Auditing Provisions:
 Types of records to be kept
 How long to keep books and records
 How frequently can you audit?
 What time period can the audit cover?
 Who pays for the audit?
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© 2011 Knobbe Martens Olson & Bear LLP
Best Practices To Monitor Performance:
 Audit provisions:
 What information do you need from the licensee?
 How often do you need the licensee to report?
 Requirement to keep books and records
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
How long must records be kept?

Who can inspect?

How often?
© 2011 Knobbe Martens Olson & Bear LLP
Best Practices To Monitor Performance:
 Practice Tips
 Docket all payment due dates
 Establish collection procedures
 Keep records of all payments
 Track trends in royalty reports
 Review licensee press releases and financial reports
 Review licensee product literature for new products
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© 2011 Knobbe Martens Olson & Bear LLP
Best Practices To Monitor Performance:
 Why an Audit Might be Necessary
 Royalty calculations are prone to mistakes

Accounting errors

Disagreements about which products are royalty
bearing

Disagreements on how Net Sales are calculated
 Identify payment deficiencies
 Deterrent
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© 2011 Knobbe Martens Olson & Bear LLP
Best Practices To Monitor Performance:
 Why an Audit Might be Necessary
 Avoid statute of limitations
 Feedback to improve future license agreements
 Improve the licensee reporting process
 Better understand how licensed property is used
 Good deterrent, but expensive
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© 2011 Knobbe Martens Olson & Bear LLP
Best Practices to Avoid Unnecessary Risk
 Representations and Warranties
 Typical reps and warranties
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
Ownership

License to IP not owned

Right to grant the license

Validity – knowledge only

No Infringement – knowledge only
© 2011 Knobbe Martens Olson & Bear LLP
Best Practices to Avoid Unnecessary Risk
 Reps and warranties to avoid

Patent validity or scope

No infringement
 Indemnification and Insurance
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© 2011 Knobbe Martens Olson & Bear LLP
Best Practices to Avoid Unnecessary Risk
 Patent Marking
 Persons found liable for false patent marking “[s]hall
be fined not more than $500 for every such offense.”
 Any person may sue for the penalty. One-half of the
penalties go to the person bringing suit, and the other
half go to the U.S.
 In Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295
(Fed. Cir. 2009), interpreted the statute as requiring
penalties be imposed on a per article basis
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© 2011 Knobbe Martens Olson & Bear LLP
Best Practices to Avoid Unnecessary Risk
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
Be very clear about patent marking requirements

Consider indemnification for false marking

Require licensees to police sublicensees
© 2011 Knobbe Martens Olson & Bear LLP
Best Practices to Avoid Unnecessary Risk
 Termination rights.
 What are the triggers?
 What happens on termination?
 What if the license is irrevocable?
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© 2011 Knobbe Martens Olson & Bear LLP
Thinking About Dispute Resolution
 Arbitration/Mediation – cast a broad net to cover all
disputes
 Disputes related to breach of the agreement
 Disputes arising under the agreement
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© 2011 Knobbe Martens Olson & Bear LLP
Provisions Unique to the IP Being Licensed
 Patent License
 License rights under the patent
 License rights to make a certain product covered by
patents
 Is Know-how included?
 Ownership of improvements
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© 2011 Knobbe Martens Olson & Bear LLP
Provisions Unique to the IP Being Licensed
 Trademarks
 Quality control
 Goodwill
 Indemnification
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© 2011 Knobbe Martens Olson & Bear LLP
Provisions Unique to the IP Being Licensed
 Copyright
 Right to create derivative works
 Written assignment of newly created works
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© 2011 Knobbe Martens Olson & Bear LLP
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