Presentation on theme: "Workshop on Contract Drafting and Patent Licensing"— Presentation transcript:
1 Workshop on Contract Drafting and Patent Licensing Matthew Just, Esq.8 March 2008
2 Workshop Outline Introduction to Drafting Contract Language Principles of Contract InterpretationContract Drafting BasicsContract Elements in DetailBoilerplate ProvisionsPatent LicensingSolution to the Patent Licensing ScenarioFinal Thoughts
3 1. Introduction to Contract Drafting What is the goal of contract drafting?How can a contract be precise?Who should draft the contract?What is the goal of contract drafting?Describe with precision the meeting of the mindsHow can a contract be precise?Accurate, complete, exact, bullet-proofWho should draft the contract?YOU! Contribute anyway.
4 2. Contract Language What makes contract language “special”? Mixture of languagesDesire to avoid ambiguityHabitPressure to conform
5 Examples of Unusual Language Doublets and TripletsDeemingHere-, there-, and where- wordsOther old-fashioned language
6 Obligations, Authorisations and Conditions Avoid the overuse of “shall”Use “will” to state a future factUse “shall” to state an obligationUse “may” to state an option or a rightUse “must” to state a condition precedent
7 Special Issues for Chinese Writers Articles (a, an, the)TenseGrammar (particularly prepositions)Punctuation(Over)Use of Chinese-English dictionaries
8 Characteristics of Plain English Short sentencesDefinite, concrete, everyday languageThe active voiceTabular presentation of complex informationSeparate paragraphs and sections, with headings, for separate conceptsThe absence of highly legal jargon or highly technical business terminology and use of Latin or other foreign languagesThe absence of double or multiple negativeThe use of multiple columns of text if the font is small
9 Benefits of Drafting in Plain English Increased Efficiency and UnderstandingFewer ErrorsPositive Image for the Legal ProfessionCompliance with statutory RequirementsBUT: There is resistance!Mention controversy
10 3. Principles of Contract Interpretation The document must be read as a wholeThe Literal and Golden RulesUt res magis valeat quam pereatContra ProferentemNoscitur a sociis
11 Principles of Contract Interpretation Ejusdem generisExpressio unius est exclusio alteriusCommercial (purposive) PurposeUCC §3-114 on Contradictory terms.Not really rules as such. Principles is more accurate.Textual approach Determine meaning from words rather than external evidence
12 4. Structure of a Contract TitleIntroductory paragraphPreamble / Recitals / WHEREAS ClausesDefinitionsOperative ClausesRepresentations, warranties, covenants, indemnities, guaranties, releasesEvents of default and remediesBoilerplateSignature BlockExhibits and AttachmentsThe following guidelines explain the organization of transactional documents:General provisions before specific onesImportant, central provisions before othersRules before exceptionsSeparate provisions or sub-sections for each conceptTechnical, boilerplate, and miscellaneous provisions located last, before the signature blocksNext look at title, introductory paragraph, recitals, definitions, and signature block
13 TitlesAll CAPITAL lettersCentered and UnderlinedUse a generic term
14 Introductory Paragraph Example:This Agreement (hereinafter referred to as the "Agreement") is made by and between XYZ Inc. (hereinafter referred to as "Licensor"), a corporation with principal offices at 1 Main Street, Buffalo, New York, and ABC Company, a limited company with principal offices at 250 Zhong Zhen Road, Taipei, Taiwan (hereinafter referred to as "Licensee").
15 Preamble / Recitals WHEREAS … Facts about: Relationship and goals of the partiesNature of the transactionOther related transactional documents… The parties agree as follows:
16 Definitions Inclusive: “Intellectual Property” means intellectual property as that term is generally used andincludes all patents, copyrights, and trademarks.Exclusive:“Intellectual property” means patents, copyrights,and trademarks.Separate section (sorted alphabetically) or first time they are used (shorter agreements)Distinguished from normal words by Initial Caps or ALL CAPSNo substantive provisions in this section!
17 Signature Block The Parties agree to the terms of this Agreement above.LicensorXYZ Inc.By: ________Name: John SmithTitle: PresidentLicenseeABC CompanyA Limited CompanyBy: __________Name: Kevin ChangTitle: Owner
18 5. Contract Elements in Detail Representations and WarrantiesCovenantsConditions PrecedentRemediesLanguage to soften provisions
19 Representations and Warranties Distinction is not normally importantThey tend to be coupled:“Party represents and warrants that…”Creates a snapshot of the factsImportant for assigning risk and due diligenceDrafted in present or past tense
20 Covenants Affirmative covenants Negative (Restrictive) covenants Financial covenantsExample:“Licensee shall pay Licensor a royalty of fivepercent (5%) of Licensee's selling price for eachLicensed Product manufactured, used, or sold byLicensee in the Territory or imported by Licenseeinto the Territory.”Note also, carveouts and basketsLook into the future
21 Conditions PrecedentRequirements that must be satisfied before a party has to perform or before the contract is enforceableSimultaneous Closing vs. Delayed ClosingNote also common types of conditions precedent
23 Remedy: Termination“In the event Operator defaults in the performance of any covenant or agreement made hereunder, as to payments of amounts due hereunder or otherwise, and such defaults are not remedied to the Supplier’s satisfaction within ten (10) days after notice of such defaults, the Supplier may thereupon terminate this agreement and all rights hereunder of the Operator but such termination shall not affect the obligations of the Operator to take action or abstain from taking action after termination hereof, in accordance with this agreement.”
24 Remedy: Acceleration“Whenever, within the sole judgment of Seller, the credit standing of Buyer shall become impaired, Seller shall have the right to demand that the remaining portion of the contract be fully performed within ten (10) days.”
25 Remedy: Indemnification Breaching party indemnifies (pays back) innocent party for all costs, damages and losses suffered as a result of the breachCould be limited by baskets or caps.
26 Remedy: Liquidated Damages Specific payment upon occurrence of certain event.Could be unenforceable (a penalty):Is the actual damage from breach difficult to calculate?Was a good faith effort made to estimate the damage?
27 Softening Remedies Materiality “[Breach]…in any material respect.” Grace (cure) Periods
28 Softening Contract Provisions Good FaithReasonable EffortsDiligent EffortsBest EffortsStrongerLots to say about best efforts
29 6. Boilerplate Provisions What does “boilerplate” mean?MiscellaneousPre-litigation planningNOT unimportant!
30 Arbitration Why go to arbitration? Example Clause: “Any controversy or claim arising out of or relating to this Agreement, or its breach, is to be settled by arbitration administered by [organization] in accordance with its [subject matter] Rules.”Arbitration or Mediation?
31 Choice of Law ALWAYS include this provision Which law should you choose?Example:“This Agreement and the rights and obligations of the parties hereunder shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York, without regard to its choice of laws principles.”Important for things like SOLMinimum contacts!
32 Consent to Jurisdiction Choice of forum provisionExample:“Each party shall submit to any court of competent jurisdiction for purposes of the enforcement of any award, order or judgment. Any award, order or judgment pursuant to arbitration is final and may be entered and enforced in any court of competent jurisdiction.”Prevents forum shoppingExample does not really choose a forum.
33 Waiver to Trial by Jury Why waive the right to a jury? Clause must be: Binding on both partiesConspicuous – bold or CAPSJuries are a bit of a wild cardOften considered unnecessary for civil actions.Might favour local resident or underdog (or patriot)
34 Counterparts Contract may be executed separately by parties Common for international agreements
35 Headings What is the proper function of headings? Example: “The descriptive headings of the Articles, Sections and subsections of this Agreement are for convenience only, do not constitute a part of this Agreement, and do not affect this Agreement’s construction or interpretation.”User-friendliness vs. courts
36 Severability Remove (sever) void provision and interpret the remainder Remainder must still represent the bargainCourt finds bad clause. Without severability, whole contract would be void
37 Integration The contract is the whole agreement No other oral or written promisesInvokes the Parol Evidence Rule
38 Waivers No Oral Waivers Effect of failure or delay to enforce rights Written waivers are limited to one occasionReal world: people give more flexibility than contractsWaive rights when there is a minor breach (e.g. delay)Effect of this could be serious though – implied waiver or estoppel actionProvision deals with waivers so that waiving party is safe
39 Amendments In Writing Signed Identify the original agreement Example: “The parties may amend this Agreement only by a written agreement, signed by the parties, that identifies itself as an amendment to this Agreement.”
40 Assignment and Delegation Assignment of rights or delegation of duties to a third partyOnly with prior written consent from other partyIssue of control – important to know who you are dealing withExample in handout is very liberal “That party shall not unreasonably withhold its consent
41 Costs and ExpensesParties cover their own expenses unless otherwise stated.Minor, but it avoids arguments
42 Further Assurances Attempts to deal with unforeseen circumstances Example:“The parties agree to do such further acts and things and to execute and deliver such additional agreements and instruments as may be reasonably necessary to give effect to the purposes of this Agreement and the parties’ agreements hereunder.”
43 7. Patent Licensing What is a license? Types of Licenses Exclusive LicenseNon-Exclusive LicensePaid-Up LicenseRunning Royalty LicenseCross LicenseGranting party gives permission to do something it could otherwise prohibit.In other words, promise not to sue.
44 Structure of a License Agreement TitleIntroductory ParagraphPreamble / RecitalsDefinitionsGrantRoyaltiesRepresentations and WarrantiesTerm and TerminationBoilerplate provisionsSignature Block
46 Patent Marking Why is marking important? Licensor may ask to inspect Licensee’s productsGives infringers constructive notice of the patentExample includes prior written notice
47 Patent Enforcement Who should sue infringers? Do we always want to sue infringers?How should the court award (compensation) be distributed?Future Licensing / negotiating tool for LicensorDe Minimus is not worth the bother (threat should be enough)
48 Representations and Warranties What should the Licensor promise?That the patent is valid?That the Licensor can grant a license?That there are no rights of third parties?What should the Licensee promise?Paying Royalties?Best efforts in selling product?
49 Improvements Licensor’s Improvement Licensee’s Improvement Can the Licensee use it?Additional Fee?Licensee’s ImprovementCan Licensor use it? If so, to what extent?If patentable, who gets the new patent?
50 IndemnificationLicensor may want to be indemnified against tort actions in relation to use of the final productLicensee indemnification depends of bargaining powerLarge licensee buying license from small inventor may be able to get indemnification against other patent claims
51 Royalty Rate Agreed on in negotiations and put into contract If disputed, Georgia-Pacific 15 factors may be relevantFactors are on pages They are very broad.
52 8. Solution to the Patent License Scenario Exclusive or non-exclusive?Paid-up or Running Royalty?Territory?Improvements?What if a dispute arises?
53 9. Final Thoughts: Precedents Where can we find precedents?Use multiple, relevant precedentsGet first and final draftsThink before copying