Copyright 2008 The Prinz Law Office.1 Getting Started with Drafting a License Agreement: A Brief Guide to the Elements and Key Considerations By Kristie D. Prinz Founder, The Prinz Law Office

Copyright 2008 The Prinz Law Office.2 Elements of the License I.Defining the Intellectual Property  What rights are to be licensed?  Will the license be exclusive or non-exclusive?  What uses of the Intellectual Property are permitted/ prohibited? Can the licensee grant sublicenses? Is the license limited to a particular territory? Does the license extend to improvements?  Should the license be limited to a particular field of use?

Copyright 2008 The Prinz Law Office.3 Elements of the License II. Defining the Term of the License Grant  Is the license perpetual?  Does the license last until the expiration of the underlying patent?  Is the license for a fixed period?  Can the license be renewed?

Copyright 2008 The Prinz Law Office.4 Elements of the License III. Defining the Payment Terms  Will the payment be up-front, by installments, or on an annual or other periodic basis? By milestones?  Will the payment be in the form of a fixed or flat fee or on a royalty basis?  If payment is by royalty, is that royalty based on the standard Net Sales term or on some other basis?

Copyright 2008 The Prinz Law Office.5 Elements of the License IV. Defining How the Intellectual Property will be Protected  Which party will control the patent prosecution and maintain the patents?  Does the other party have the right to step in and take over prosecution and maintenance if the other party declines to do so?

Copyright 2008 The Prinz Law Office.6 Elements of the License IV. Defining How the Intellectual Property will be Protected  Which party will bear the responsibility for litigating against infringers?  Does that party have control over the litigation decisions?  How will any settlement proceeds or judgment awards be distributed?

Copyright 2008 The Prinz Law Office.7 Elements of the License V.Allocating the Risks  What happens in the event of a termination by either party? A breach by either party?  What is the licensor’s obligation to the licensee in the event a claim of infringement is brought by a third party? Licensee’s obligation to licensor if a licensee action triggers the third party claim of infringement?  What steps, if any, do you want to take to protect against a bankruptcy by either party?  Do you want to cap the total liability?

Copyright 2008 The Prinz Law Office.8 Elements of the License VI.Resolving Disputes  What governing law applies?  Do you want to resolve licensee-licensor disputes by litigation? Or by mediation/arbitration? If so, where should such proceeding take place and if mediation/arbitration, what rules will apply?  If the licensee challenges the validity of the underlying intellectual property, what consequences should apply?  Who bears the costs of any dispute resolution procedure?

Copyright 2008 The Prinz Law Office.9 Key Considerations in Licensing I.Establishing that the Intellectual Property to be Licensed Meets Requirements  Is there satisfactory proof that the licensor owns the intellectual property? Is there a clean chain of title? Are assignments and other agreements transferring rights in order?  If the intellectual property to be licensed is a patent, does it cover what you need it to cover? Is it pending still? If so, what happens if the patent is never granted?  Is the proposed scope of the license grant adequate to provide the rights sought? Is the grant clearly defined?

Copyright 2008 The Prinz Law Office.10 Key Considerations in Licensing II. Assessing the Clarity of the Payment Terms  Do the payment terms require clarification to understand?  Are royalties based on a standard definition like “Net Sales”? If not, can the definition applied be easily understood?  Are milestones defined very precisely?  Have you provided for royalty audits? How are overages/shortages being dealt with?

Copyright 2008 The Prinz Law Office.11 Key Considerations in Licensing III. Risk Planning  Have all potential issues that could cause either party to terminate been anticipated and addressed?  Is the termination clause clearly drafted and does it address what obligations remain and end at termination? Have you considered what would likely happen upon bankruptcy of either party?  Have you addressed limitation of liability? Indemnification?  Have you agreed on how disputes will be resolved?

Copyright 2008 The Prinz Law Office.12 CONTACT INFORMATION Kristie D. Prinz, Founder The Prinz Law Office P.O. Box 1594 Los Gatos, CA Phone: Fax: