In Part 1, we covered: Current positions and trends in the law to be aware of; Ensuring that you are comfortable with your potential client and want to do business with this entity; Documenting who your client is and ensure that the client provides clear and convincing evidence of any organizational changes that could affect the IP License; Making your license grant as clear and protective as necessary; and, considering whether It makes sense to include language regarding a transfer fee upfront within your IP License
Below are additional important practices to consider implementing to increase your protections and controls. By considering these tips and including some of these provisions in your IP License Agreement (IP Licenses), you reduce the risk of your software or other IP being transferred without your consent and you will be in a stronger position in the event of a dispute.
- Assignment Provision. As stated with the license grant (in Part 1 of this article), ensure that your assignment provision includes the exact language that you need to protect your IP and to control who your Licensee and other authorized current or future users may be. Consider a broad restriction on assignment or transfer which is prohibited without your consent and include language within this provision “even by operation of law or in the event of an assignment, sale, or merger.” This extra language could assist and strengthen your position against an unauthorized transfer or assignment of your IP in the event that a state law allows for the automatic assignments due to a sale of a business.
- Termination Rights. Considering all of the factors mentioned with the potential unwanted or unauthorized transfer of IP (in Part 1 of this article), leads to the importance of including a protective termination provision within your IP License. Your termination rights should allow you to control and/or prevent transfers due to future circumstances that change your original Licensee. It may be unreasonable and difficult to have the Licensor’s right to terminate for convenience (any reason) due to the fact that the Licensee paid for the continued right to use the software to run its business provided payment was made and the use is in accordance with the IP License. The Licensor should consider inclusion of some reasonable termination rights or suspension of use rights in the event of an unauthorized and/or unapproved transfer or in the event of a change in control or sale without Licensor’s consent.
- Rights to Increase Fees. Another approach to consider is ensuring that your IP License and/or your maintenance or support agreement allows you, the Licensor, to increase fees upon notice for any business reasons. This could be another approach in protecting yourself in the event of an unauthorized unpaid for transfer as the Licensor could notify the Licensee of the planned increase in fee and in the event that the Licensee does not agree with the increase or does not pay, the IP License could be terminated accordingly (either by the Licensee as allowed or by the Licensor with notice and due to non-payment). This is a way of allowing you, as the Licensor, to get out of a business arrangement that is not in accordance with your original intent and could be used as a last resort to stop any unauthorized use of your IP within your contractual rights.
- Retain an attorney to review your contracts. Retaining an attorney to review complex contracts especially when dealing with a new client or business partner is recommended to ensure that you have considered all of the protections that you need (especially taking into consideration specific needs or technicalities of your business, your IP, or jurisdictional laws). Business owners do opt to utilize standardized contracts found online for particular transactions to save time and costs but many times the protections and technicalities and jurisdictional laws that we discussed in this memo are not taken into consideration and therefore, utilizing an attorney for initial review and on-going complex negations is a recommended practice to identify risks and strengthen your protections.
- Conduct on-board and on-going training of your employees. Employees should undergo training on business practices and processes, especially customer facing employees. This is to provide the necessary guidance to your employees to ensure that they are aware of the concerns and protections required with IP Licensing and to ensure that your company is current with any compliance requirements based on the laws pertaining to your business. Businesses can save money and avoid unnecessary disputes by ensuring that all employees are aware of the risks and protections needed with your IP licenses.
Should you have any questions about protecting your IP from unauthorized transfers within your IP license, or any other laws that may affect your business, or would like to schedule a free initial consultation, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800 or contact us online.
Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Business Immigration, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law.
This article constitutes attorney advertising. The material is for informational purposes only and does not constitute legal advice.
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