So Is It Joint Ownership or a Licence?

This week's contract construction issue involves joint ownership. Joint ownership of IP rights is one of those relationships to which parties often gravitate, even if legal counsel takes a dim view. In that context, consider the following two provisions, which in various related forms, I have encountered from time to time.

First, the parties state that they "agree they shall jointly own all of the intellectual property rights resulting from their mutual performance of the Project."

Second, the parties further agree that "Party A grants to Party B an [exclusive] licence with respect to the use of the Intellectual Property rights created during their mutual performance of the Project [for defined purposes of use]."

The obvious question is why are there two clauses apparently covering the same subject matter, one establishing joint ownership, while the other purports to grant a licence from one party to the other? If the IP is jointly owned then, subject to any particular local laws, each party is permitted to do what it likes with respect to these rights. If so, what purpose is served by the grant of licence? Permit me to offer several suggestions (readers are urged to offer their own comments):

1. Declaration of jont ownership may not be legally sufficient to create co-ownership. Perhaps the licence provision is a back-up in the event that joint ownership is not recognized. Even if A and B are not joint owners, A does grant to B the same rights that B would have enjoyed a co-owner.

2. Alternatively, the licence is an unartful attempt to create a limitation on the unfettered right of each joint owner to use the mark with restriction from the other joint owner, in this case a limitation on the right of use by B.

3. To the contrary, the grant of an exclusive licence could have the affect of limiting the right of use by A, in accordance with the meaning of an exclusive licence under various national laws.

4. The licence is provided in accordance with the requirements of local law. We were informally advised, e.g., that there is such a provision under German law. If this is correct, the provision serves to bring the parties into compliance with the applicable local law.

I probably have missed other possible ways to understand the two clauses. Dear readers: the floor is open.

Will the Licensor Warrant Non-Infringement?

Last week, I wrote that from time to time I will consider issues that arise in the drafting of licensing agreements. One reader has responded with the following:

"One issue that often causes problems when negotiating a licence is where a licensee seeks a warranty/indemnity that exercising their rights under the licence will not infringe the IP rights of a third party. It can be difficult to communicate to the licensee that the licensor is simply agreeing not to sue under its IP rights, not making a positive statement that there are no other IP rights which might affect what the licensee will be doing, and that it remains the licensee's responsibility to carry out any clearance searches that may be necessary to establish whether any such rights exist."

I would make the following comments:

1. As a starting point, I agree that the narrow import of the licence is that the licensor agrees not to exercise its negative right against the licensee with respect to the IP right being licensed. That said, since a full-fledged commercial licence consists of multiple elements in addition to the basic "covenant not to sue", whether or not the licensee's request is apt may ultimately depend upon the particular circumstances.

2. I must confess that, while I find this issue raised by a licensee from time to time, at least in my practice it arises less frequently than other licensing matters. It would seem to depend a lot upon the relative bargaining power of the two parties. A desperate patentee with one potential licensee, if requested to give the warranty by the licensee, may be more inclined than the licensee selected by a world-famous trade mark owner to serve as the licensee for a major territory.

Is she the licensor or the licensee?

3. An interesting twist is to migrate the issue from an IP licence to the warranties and representations given in a corporate acquisition with a major IP component. While here, as well, bargaining power may affect the extent to which the purchaser will be able to extract such an undertaking from the seller, in my experience the issue will be addressed in the agreement in some way, either with or without knowledge qualifiers or subject to other seller qualifications.

4. Following on the licence/acquisition comparison, it is not infrequent that a portion of the purchase price is held- ack for a certain period of time in connection with breach of a warranty or rep. When it comes to IP, as the purchaser, I like to carve out an additional hold-back directed specifically to IP. The greater the value of this IP hold-back, and the further out in time the IP warranty and rep extends, the more willing the seller may be to take care of IP clearance, even if not stated so explicitly in the agreement.

5. Back to the licence situation, while in my experience it is a rare for the licensor to agree to put a sum into escrow to cover potential violation of third party IP rights by the licensee under the licence, it is not unheard of.

6. Moreover, a licensee that is committing itself to a new ramp-up of facilities and resources may be well placed to expect from the licensor some form of IP clearance and/or a rep prior to entering into the agreement.

How do these observations comport with the experience of the readers? Comments are welcome.

Question on Rejection of IP Licenses in Bankruptcy or Insolvency

I am departing from my usual form of commentary to pose a short request for information from readers. I have just completed a short piece for a publication on the issue of the treatment of IP licenses in a bankruptcy proceeding. While there is apparently a major divide on the issue between the U.S. position and the position elsewhere on whether a licensee can seek to force the licensor in bankruptcy to continue with the license, all systems seem to allow the trustee, in some fashion, to reject the license.

My question is whether any reader is aware of a decision under a national bankruptcy law in which a trustee has rejected the license and the issue was later brought to court. If so, I would be most grateful for receiving particulars about such decision. Please post the particulars as a Comment below or, if that is not possible, email me here