This series addresses the needs the legal community has for technology licensing knowledge by laying out basic concepts, identifying traps for the unwary and offering drafting and negotiating tips. Click here to read parts one, two, three and four.
In every licensing transaction, the parties need to address how they will deal with third parties who may be infringing the underlying intellectual property. Both parties usually have an interest in addressing infringement, but the specifics of their interests can sometimes vary significantly. In addition, the case law is filled with alleged third-party infringers challenging a party’s standing to sue them. To avoid uncertainty and the related litigation costs, it is critical for a license agreement to provide clarity regarding the parties’ respective enforcement rights against infringers.
The Federal Circuit, in Alfred E. Mann Foundation for Scientific Research v. Cochlear Corp., 604 F.3d 1354 (Fed. Cir. 2010), listed the following factors to consider when doing this categorization:
- The transfer of an exclusive right to make, use and sell products under the patent
- The scope of rights to sublicense
- The nature of the reversion of rights upon breach
- The licensor’s rights to share in the proceeds from enforcement
- The duration of the license
- The licensor’s rights to supervise and control the licensee’s activities
- The licensor’s obligation to continue paying maintenance fees
- The nature of any limits on the licensee’s right to assign its interests in the patent
The court noted, however, that frequently the most important factor is the nature and scope of the parties’ respective enforcement rights as they have attempted to define them in the license agreement.