Whenever a company licenses a piece of technology from another company to be included in a product or service, there are many considerations - how much to pay for it, what the deliverables are exactly, what license rights are granted, what warranties or assurances are provided that the licensor actually has clear ownership of the technology and that no infringement exists, what kind of coverage is available if anything doesn't work or goes wrong. All of these items will be negotiated in a license agreement. But today I want to talk about the 3 things a license agreement needs to have if the licensing business wants to avoid tainting of their own intellectual property.
What is tainting?
Tainting of intellectual property is the risk associated with exposure to other intellectual property that may be competitive with their own. For instance, Company A has a product. They also have been internally developing a technology, but are finding that it would be more cost-effective (or for whatever reason) to license a technology from Company B. However, Company A wants to retain the ability to continue to develop their own technology in-house if they wish.
So what do I need to do to avoid tainting?
1) License grant - First, you will need a sufficient license grant that gives you the ability to do what you need to do with the technology. Yes, you need a license to use the technology. But you will also need a license to modify and distribute it. Bascially, you are looking for a license grant that is tantamount to ownership and provides you with the freedom to use and manipulate the technology as you need to. Look carefully at what your product development and sales flow will be and work closely with your lawyer to determine what rights you need.
2) Unlimited liability - Secondly, you will need the appropriate coverage from the licensor in case anything goes wrong with the technology. Unlimited liability - in the form of both dollars and types of damages - is the ideal from a licensee's perspective. This is one of the most heavily contested and negotiated provisions in license agreements. There are many creative ways to allocate risk between the parties and, again, you should work closely with your legal counsel on this item. That being said, at the end of the day, risk allocation is always a business decision and one that should be made at the executive level, with lots of input from the legal, product development and financial teams.
3) Residuals clause - Lastly, you will need the freedom to use the "residuals" (which are generally defined - although this contractual definition can again be negotiated - as information which a person simply can't forget once they have been exposed to it). This clause is usually a part of the confidentiality section of a license agreement. If you have technology that may be competing with that of the technology you can licensing in, this is a vital issue.
At times it can seem to make more sense to simply buy the technology you want to license, such that the ownership is transferred to your business, rather than deal with a license agreement.
Note: This is all told from the licensee perspective, which in some ways is a
little odd, since I mostly work on out-bound licensing agreements as the licensor. However, you do have to understand both sides of the equation and most tech companies do both in-bound and out-bound licensing at some point or another.
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