Intellectual Property

The Art Of Asking: Avoiding The Template Trap In IP Licenses

Here are three of the most critical questions to ask when standing at the starting line in any intellectual property transaction.

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Licensing intellectual property is never as simple as it sounds.  By its very nature, intellectual property is inchoate — you can’t really “touch and feel” intangible assets, even though you can handle an invention embodying patent rights, apparel with a logo on it, or the media upon which copyrights are fixed. To me, that is what makes this area of legal practice so exciting, but it can also be maddening to the uninitiated.  Whether your company has intellectual property assets it is licensing to others, or seeks to acquire certain rights to expand its business, licensing is a delicate business that cannot be taken for granted.
Intangible assets convey specific rights to the owner, some or all of which can be licensed to others in a myriad of ways, with or without limitations.  Further, the various types of intellectual property protect different things, and in many instances, a company requires a weave of various types of intellectual property rights to accomplish its business goals.   Patents protect ideas, copyrights protect the expression of those ideas, trademarks help identify the source of goods and distinguish the owner’s goods from those of another, and trade secrets protect a host of confidential information that provides intrinsic value by virtue of such information not being generally known.  How do these types intellectual property all work together to achieve the desired business ends?  Now THAT is the million-dollar question, and although licensing is usually part of the answer, the form of that license can make all the difference.
Whether your company (or your client) are licensing intellectual property, or seeking rights to incorporate into products to exploit in the marketplace, a properly constructed intellectual property license is not just necessary, but essential. That said, the construct of such licensing depends on asking the right questions in the first place.  I never cease to be amazed how often counsel rely on standard provisions within their “templates” when the weave of intellectual property simply may not fit those constructs. Further, there is rarely a “one-size-fits-all” solution in the first place.  Will the license be exclusive or non-exclusive?  What rights need to be conveyed to the licensee to accomplish the purpose of the license agreement? Does the exercise of the rights needs to be limited to a specific geographic region or specific market or field?  In fact, how long should the license be in effect? These are only some of the questions that need to be asked, and each type of intellectual property will require different contractual expression.
For example, patents and copyrights are both statutory, but protect different things and enjoy vastly different terms of protection.  As stated above, patents generally protect ideas and concepts, while copyrights protect the expression of those ideas.  Patent rights in the United States generally extend for a period of 20 years from the date of the application is filed, but for copyrights, the term is life of the author plus 70 years where the author of the work is known, and potentially longer for works made for hire or anonymous works.  The grant of rights under a patent license may convey rights to make, have made, and sell, while copyright grants may address the right to reproduce, publicly display, or prepare derivative works from the underlying work.  These difference merely scratch the surface, but you get the point.

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Approaching intellectual property licensing requires asking the right questions to shape the appropriate answers.  Here are three of the most critical questions to ask when standing at the starting line in any intellectual property transaction:
  1. What Rights MUST Be Licensed to Properly Exploit the IP?  This is the question most companies fail to ask, usually to their detriment.  A party cannot negotiate an intellectual property license without understanding what it needs.  This sounds SO simple, but you would be stunned how often it simply does not happen. Bottom line:  Always ask what is necessary — it will help shape the nature and depth of the license.
  2. What Rights are NOT Critical to Exploit the IP?  This is yet another question that most companies usually fail to ask, but it is a less obvious one.  Asking about what you don’t need is not natural, but it is necessary.  At the very least, a party that has answered the first question above has already teed-up the answer to this question, and in so doing, has helped shaped what is not essential to the underlying license, usually saving time (and headaches) as well.
  3. What Protections are Essential to the Success of the License?  It should go without saying that the strength of the rights being licensed are only so good as the party behind them.  I have been known for stressing that IP indemnification is only as good as the indemnitor’s financial well-being, and this maxim is no different.  How the intellectual property is being maintained and protected are essential to the viability of the underlying license — resources are going to be expended based upon such rights, so knowing how well they are being protected and policed is good practice — it helps shape contractual limitations and indemnities, and helps the parties set expectations regarding the underlying IP assets.
As you can see, intellectual property licensing cannot be taken for granted, and should be approached with a healthy dose of caution.  Although parties to most IP deals are usually excited about entering into them, the contacts reflecting them are usually anything but standard.  Asking the right questions at the outset can help shape the deal in ways the parties may not have contemplated (and may even reshape the nature of the deal itself).  So don’t get caught in the template trap — ask the right questions so the language fits the deal — by doing so, you can avoid your company (or client) asking you some very uncomfortable questions (and forcing some very embarrassing answers) in the process.

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Tom Kulik is an Intellectual Property & Information Technology Partner at the Dallas-based law firm of Scheef & Stone, LLP. In private practice for over 20 years, Tom is a sought-after technology lawyer who uses his industry experience as a former computer systems engineer to creatively counsel and help his clients navigate the complexities of law and technology in their business. News outlets reach out to Tom for his insight, and he has been quoted by national media organizations. Get in touch with Tom on Twitter (@LegalIntangibls) or Facebook (www.facebook.com/technologylawyer), or contact him directly at tom.kulik@solidcounsel.com.

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