This series addresses the needs the legal community has for licensing technology knowledge by laying out the basic concepts that one should understand, identifies traps for the unwary and offers drafting and negotiating tips. Click here to read parts one and two.
Royalty obligations should provide a clear description of the licensee’s activities for which royalties are to be paid and should be carefully coordinated with the license grant provisions. The royalty obligations can take different forms depending on the nature of the intellectual property, such as whether it is a machine, a process or a composition of matter. They also may vary based on the licensee’s intended use, e.g., use for manufacturing purposes or sales of patented products.
- Special Dispositions
In the normal course of its business, a licensee may dispose of royalty-bearing products other than by sale at fair market value. The smart licensor, therefore, will have an agreement that addresses:
- Demos/samples/internal use
- Bundling/package sales
- Payments in kind
- Related party sales
- Promotional giveaways
- Loss leaders
Drafting Tip: Depending on the circumstances, possible ways to address the foregoing special dispositions include: