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 Research, Technology, Innovation
Technology Opportunities
Licencing Opportunities
Licensing Agreements: Do's and Don'ts
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 10) Licensing Agreements: Do's and Don'ts - Term and TerminationDreadful Drafter sees the last note from his President:"five year term, renewable" and writes "This agreement shall take effect as of February 1, 1992 and shall continue in effect until January 31, 1997 and thereafter for successive periods of five years." He then proceeds to include the usual provisions that the agreement will terminate on insolvency,unremedied breach, or "upon 12 months notice from either party." Note that Dreadful Drafter did not provide that the agreement will renew automatically after every five year period unless terminated by either party at the end of the fifth year. Thus the five year term is irrelevant; the term will not expire after five years but keep running for an indefinite period until either party gives the 12 months notice. The Courts will not read in different conditions of termination when termination has been provided for in a license.(49) Frequently, agreements provide for a long term such as "five years" or "life of the patent" but subsequently provide for termination after the expiration of a shorter period following one of the parties giving notice to the other. In these agreements, for all practical purposes, the term that the parties can rely on for business purposes is only the shorter term. The business decision maker could be deceived by the reference to the longer term.
10.1 License Exceeding Patent Term Dreadful Drafter should keep in mind that in Canada, parties may contract for the term of a license of technology to exceed the term of its patent protection.(50) In contrast, the U.S. anti-restraint of trade rules may limit the obligations under a simple patent license to the term of the patent protection.
10.2 Terminating Events Dreadful Drafter provided that the "agreement" itself shall terminate upon the happening of certain events. What happens to all the rights and remedies after termination of the Agreement? A better approach for Dreadful Drafter might be to determine all the rights and obligations in the agreement that require termination and then draft a termination clause for each group of similar rights and obligations. The converse of this approach is to consider what provisions of the agreement shall "survive" termination of the agreement.(51)
10.3 Consequences of Termination Dreadful Drafter could now consider the consequences of the termination, including: (a) the Licensee ceasing to use the Licensed Software; (b) the Licensee ceasing to use the Licensor's trademarks and logos; (c) the Licensee returning to the Licensor all copies of the License Software in its possession; (d) if the Licensee does not have the right to return all copies of the Licensed Software which are on hand for the purposes of resale, consider what right the Licensee has to dispose of its inventory. Rules in the United Kingdom and the United States might require such a right of disposition; (e) if the Licensee has the right to dispose of inventory on hand at termination, the Licensor might want to have the right to perform an audit of this inventory. Otherwise, the Licensed Software might be reproduced surreptitiously following termination, and the Licensor would have no way of separating pre-termination copies from copies made after the termination; (f) the Licensee paying all royalties earned pre-termination and, if the Licensee has the right to sell its inventory, after termination; and (g) the Licensor having a right to audit the Licensee's books and premises to satisfy itself that it has been paid in full and that the Licensee has ceased to use and reproduce the Licensed Software.
10.4 Bankruptcy Most license agreements provide for termination in the event of bankruptcy of the licensee. Some bankruptcy legislation may render that type of termination provision ineffective and give the trustee in bankruptcy the right to assume or reject the license agreement.(52)
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| Created: 2003-02-13 Updated: 2004-03-18 |
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