8) Licensing Agreements: Do's and Don'ts - Improvements

8.2 An Improvement Must "Infringe"

Some licensing drafters have chosen to say that an improvement that must be communicated is an improvement that infringes the intellectual property rights of the product involved, in this case the Licensed Software. This solution may be appropriate for a product that is the subject of a patent, but may be of little help if the software is protected by copyright. Does the copyright protect:

(a) only the literal code of the Licensed Software;

(b) the structure sequence and organization of the Licensed Software; and

(c) the Licensed Software's user interface.

The case law has established that the literal code is protected, but that protection provides little assistance. The Whelan v. Jaslow(28) case indicates a desire to protect structure,sequence and organization, but there is no general consensus as to how far copyright will protect structure, sequence and organization. There are numerous cases now before the courts trying to establish to what extent copyright will protect user interface,and the cases seem quite contradictory.

Thus, this solution provides little certainty to the business decision makers who are involved. It would seem that the word "improvement" will have to be tailored for each agreement.(29) Dreadful Drafter should provide a precise description of the improvements intended by the parties; otherwise a court may be asked to imply what terms were meant by the use of the word "improvement".

8.3 Communication of Improvements

As well, the draft clause does not state when or how details of improvements are to be communicated. Is the communication to be in writing addressed to a stated technical representative or will disclosure in a casual conversation over a beer be sufficient? Does Interco have to disclose details of the improvement as soon as rudimentary details of the improvement are developed or can it wait until it has developed the improvement sufficiently to establish substantial commercial advantage?(30)

Devco's ability to patent any improvement may depend on early disclosure. However Interco may be reluctant to disclose rudimentary ideas especially towards the end of the term of the license.

8.4 Term of Use of Improvement

The improvement clause must address the term during which each party may use the improvement. Dreadful Drafter stated that Interco had exclusive rights to the improvement in the U.S. and England "during the term of its license of the Licensed Software". Let us assume that the term of the license of the Licensed Software is ten years and the term of protection for the improvement under copyright rules is 50 years. As drafted, Interco will lose its rights to use the improvement at the end of the ten years. This could cause significant harm if the improvement was a stand alone product with an economic life lasting well beyond the ten years fully protected by copyright and the right to use the improvement being lost on the termination of the right to use the unimproved technology.(31)

8.5 Only in Canada You Say

Earlier I mentioned that the improvement clause may be valid in Canada. This is not likely the case either in the United States or England due to their restraint of trade rules. These rules might invalidate any provision which does more than require Interco to grant to Devco a world-wide non-exclusive royalty-free license with the right to grant sublicenses.(32) In Canada we must always be wary that many of our practices may be in violation of rules of other jurisdictions that are designed to promote competition.