The following checklist is intended to raise questions regarding issues which may be addressed in negotiating and preparing a license agreement.  Close attention to contract drafting will promote licenses which will be beneficial.


I. Preamble - Statements

A. Identification

1.     Parties:
a. Address; location
b. Type of business organization

2.     Effective date of agreement

3.     Relationship of parties

B. Recitals
1. Licensed subject matter:
a. Patents and applications
b. Know-how and technical assistance
c. Improvements
d. Trade secrets

2. Field of the agreement; types of technology

3. Rights to be licensed

4. Definition of terms

5. Representations made by parties

6. Background:
a. Prior relationships between parties
b. Prior agreements:
(1) Canceled
(2) Suspended
(3) Superseded
(4) Incorporated by reference
c. Technological subject matter

7. Consideration; acknowledgements


II . Grant of License Rights

A. Exclusive or non-exclusive

1. Subject to licensor's rights
2. Subject to other license agreements

B. License limitations

Make, use, sell, lease, sub-license
Sub-license manufacturing

Less than all patent claims

Sale of components, spare parts

C. Territorial restrictions
Geographical
Manufacturing, sales locations

D. Quantity restrictions
a. Specified quantity
b. Percent of market
c. Relation to licensor's sales

E. Field-of-use restrictions
    Design, style, size or capacity of product
    Sales of certain combinations only
    Sales for limited applications or uses
    Sales limited to certain market segment or customers
    Sales for application or use in specified territory
    Sales through specified market channels only

F. Sale price limitations

G. Tying arrangements

H. Antitrust considerations


III . Consideration, Monetary and Otherwise

A. General problems

1. Reasonable and unreasonable consideration

2. Discriminatory payment scheme

A. No payments after expiration or termination of patent
B. Fixed payments
    
3. Single payment, at beginning     
Fixed sum payable in installments
Specified certain periodic payments

4. Interest payments; overdue amounts

B. Default and acceleration (immediate payment of full amount)

C. Variable payments

1. Per item or percentage of value:
a. Rate
b. Direct proportion
c. Descending
d. Ascending
e. Differential

2. Basis:

a. Number of items:
(1) Manufactured, sold or used
(2) All items or patented items only
(3) Definition of "manufactured" and "sold"
(4) Single payment per unit

b. Components, supplies or raw materials purchased or used:
(1) Volume basis
(2) Cost basis
(3) Item basis

c. Use fees and other consideration paid to licensee

d. Sales by licensee:
(1) All items or patented items only
(2) Definition of net sale
(3) Effect of returns
(4) Effect of warranty service
(5) Effect of losses
(6) Effect of packaging costs, taxes, duties, etc.
(7) Sales to parents, subsidiaries and/or affiliates

e. Profits of licensee; definition and determination of profits;

Related issues:
a. Credit for royalties paid to others
b. Credit for sales to licensor or other licensees
c. Effect of expiration or termination on obligation to pay accrued royalties Minimum payments:

a. Initial payments (front money)
(1) In addition to and independent of running royalties
(2) Credited against future royalty payments

b. Minimum royalties:

(1) Payment required (mandatory)
(a) In advance of royalty period
(b) At end of royalty period

(2) Optional payment:
(a) To maintain exclusiveness
(b) To retain license rights

(3) As satisfaction of duty to exploit

(4) Carry over minimum payments from one period to another 5. Maximum payments
b. In total over term of license

Accounting matters:

a. Timing and content of reports

b. Time of payments

c. Records; content and maintenance

d. Auditing of records:
(1) Licensor or independent accountant
(2) Scope of audit; scope of information disclosed to licensor
(3) Time limitation
(4) Confidentiality and use of information
(5) After termination and/or expiration


IV. Other General Rights and Obligations

A. Release and waiver for past infringement Licensee, licensee's customers
Absolute or conditional:
a. Upon continuance of the agreement
b. Upon payment of a prescribed sum
Specific or general release and waiver

B. Guarantees and warranties by licensor Ownership of licensed patents, technology and know-how

Right to license Commercial viability and utility
Validity of patents
Non-infringement of others' patents

C. Most favored nations clause
Scope of clause:

a. All terms generally
b. Royalty terms only

2. Application of more favorable terms: Automatically b. At licensee's option

3. Original licensee entitled to:
a. Notification of previous and/or later licenses
b. Copies of previous and/or later licenses

D. Sublicensing Prohibited

2.
a. Terms and duration
b. Only with approval of licensor
c. Copies to licensor
d. Rights and liabilities regarding royalties
e. Specific consent of licensor, case-by-case

E. Patent validity acknowledgment

Scope of applicability:
a. With respect to all licensee operations generally
b. With respect only to licensed operations

Duration limitation:
a. Term of license to licensee
b. Term of patents
Agreement not to assist others in contesting validity

F. Admission of infringement; past, present and future

Scope:
a. General admission
b. Specific to identified acts or items

2. Agreement not to dispute scope of claims 3. Agreement to consent judgment, injunction upon expiration or termination

G. Enforcement of licensed patent

Right or obligation of:
a. By licensor
b. By licensee
c. By parties jointly
d. By licensee if licensor does not; licensor as compulsory plaintiff

2. Allocation of expenses and recoveries Inaction or default of enforcement obligation by one party:
a. Enforcement by other party
b. Termination of agreement by other party
c. Cancellation of exclusivity by licensor
d. Cessation of royalty payments by licensee
e. Cost and recovery to enforcing party

H. Invalidity of licensed patent
1. Claims invalidated:
a. Right to terminate agreement
b. Effect on royalty payment

2. Claims construed (narrowed); effect on royalty payments

I. Know-how and technical assistance - transfer of technology

Delivery of data and other information:
a. Present; future
b. All information; written material only
c. Only information licensor has right to disclose
d. Secrecy and use:

(1) Restrictions on use
(2) Employee agreements
(3) Indemnification for breach
(4) Publication, public domain, third party information; rights and limitations

e. Expiration or termination of license:
(1) Return of tangible material
(2) Continuance of secrecy

Licensee's visitation rights; training of personnel:
a. Time limitations
b. Expenses of training

3. Furnishing teaching, consulting and advisory services:
a. Time limitations
b. Payment of licensor

4. Responsibility for damages and injuries by acts of licensor or licensee during transfer
Employment of licensor or retention as independent contractor (consultant)

J. Exploitation of licensed inventions

Duty to exploit:
a. Fill demand only
b. Create demand
c. Payment of minimum royalty as satisfaction of duty

Specific obligations: Production facilities
(1) Time of completion
(2) Capacity
(3) Quality

b. Manufacturing and sales:
(1) Beginning time
(2) Manufacturing standards
(3) Minimum production

c. Advertising:
(1) Approval by licensor
(2) Minimum budget

d. After service (warranty service)
(1) Facilities
(2) Repair parts

3.Default remedies:
a. Loss of exclusivity
b. Termination of rights

4. Exchange of commercial information
5. Control of exploitation by licensor

K. Patent marking; license right marking Form of notice:
a. As specified by statute
b. As specified by agreement
c. As specified by licensor

2. Position of notice on products

L. Defense of infringement suits

1. By licensor:
a. Defend only; indemnify and hold harmless also
b. Licensee; licensee's customers
c. Liability dependent on:

(1) Prompt notification
(2) Cooperation

d. Liability limited to:
(1) Arbitrary amount
(2) Compensation received from licensee

2.
By licensee:
a. Expenses offset against royalty payments
b. Liability of licensor limited to cooperation

3. By parties jointly:
a. Allocation of expenses
b. Authority and responsibility for conduct of defense

M. Improvements

1. By licensor; inclusion in license:
a. Automatically
b. At option of licensee
c. Additional royalty payments

2. By licensee:
a. Inclusion in primary license for royalty purposes
b. Grant-back license to licensor
c. Reduction of royalty payments
d. Assignment to licensor

3. By parties jointly:
a. Joint ownership maintained
b. Allocation of patent prosecution expense
c. Inclusion in primary license for royalty purposes
d. Rights on termination or expiration

4. Related matters:
a. Definition of “improvements
b. Invention agreements with key employees

N. Licensed patent applications

1. Responsibility for filing and prosecution:
a. Authority for direction of prosecution
b. Expense of filing, prosecution and maintenance

2. Effect of non-allowance of claims, royalty payments

Foreign patents and applications license rights:
a. Responsibility for patent costs
b. Sublicensing rights
c. Export authority
d. Export prohibition

P. Option to purchase patents/technology/business
1. Outright option
2. First right of refusal to purchase


V. Duration, Termination and Related Provisions

A. Duration
1. Commencement date

2. Time term:
a. Life of patents
b. Specified period
c. Specified period subject to renewal

3. Cancellation option:
a. Any time with notice
b. Within specified period
c. Before or after a specified period

B. Termination for cause
1. By licensor:
a. Any default of licensee
b. Bankruptcy, etc. of licensee
c. Nonpayment of royalties
d. Nonpayment of minimum royalties
e. Failure to render royalty and/or production reports
f. Failure to enforce patents
g. Failure to exploit
h. Force majeure

2.
a. Any default of licensor
b. Failure to enforce patents
c. Patent claims held invalid
d. Force majeure

3. Manner of effecting:
a. Notice of default
b. Remedy period
c. Notice of Termination

4. Preservation of other rights and remedies at law and in equity

C. Post-termination

Rights of licensee:
a. Sale of products on hand
b. Limitation of time or units

Obligations of licensee:
a. Payment of accrued royalties
b. Payment of royalties on post-termination sales
c. Return of know-how in tangible form
d. Continued maintenance of secrecy of know-how

3. Rights of licensor:

a. Purchase of licensee's product on hand
b. Examination of licensee's books and records

D. Impossibility of performance; force majeure

1. Obligations suspended
2. Right to terminate after specified period

E. Severability of agreement provisions

F. Arbitration
1. Arbitrable disputes:
a. All disputes
b. Specific disputes only

2. Optional or exclusive remedy

3. Arbitrators:
a. Number
b. Selection of arbitrators
4. Place of arbitration, hearing(s)
5. Majority or unanimous award
6. Governing rules

G. Limitation on effect of waivers

H. Agency and similar relationships

Negation of such relationships
2. Statement that licensee is independent contractor
3. Agreement by licensee not to act for licensor
4. Misrepresentations; rights and obligations

I. Entire agreement and modifications

1. Merger of prior discussions
2. Negation of implied warranties
3. Written modifications only
4. Supersession of prior agreements

J. Assignment
Authorized:
a. One or both parties
b. Limitations
c. Release of assignor from liability
d. Assumption of obligations of assigning party

2. Prohibited

K. Governing law - substantive and procedural

L. Insurance; product liability imputation

M. Notices

1.Written
2. Manner of service
3. When effective

N. Execution of agreement
1. Recital of execution
2. Date of execution
3. Signatures of parties
4. Authorization of signers
5. Notarization, witnesses


VI. Other Considerations, Provision and Agreements

A. Option to enter into license agreement

1.Term of option

2. Consideration

3. Warranties by licensor

4. Obligations of licensor:
a. Furnish drawings, other documentation
b. Provide copies of patents and applications

5. Secrecy and use rights and obligations

6. Offset of option consideration against future royalties

B. Sublicenses;
separate agreements

1. Authorization to sublicense in primary license <

2. Term:
a. Dependent on continuance of primary license
b. Independent

3. Warranty of right to sublicense

4. Primary licensor as party to sublicense; consent

C. Cross Licenses

1. Reciprocal licenses terminable independently
Risk of restrictions

D. Settlement of interference (US PTO)

1. Disposition of pending interference; right of appeal:
a. By parties
b. By attorneys for parties
c. By arbitration
d. By US PTO

2. Filing of settlement agreement in US PTO:
a. Formal approval by US PTO

E. Settlement of opposition
1. Disposition of pending opposition; right of appeal:
a. By parties
b. By attorneys for parties
c. By arbitration
d. Dismissal by patent office with jurisdiction

F. Settlement of infringement disputes and litigation
1. License agreement
2. Agreement to cease and desist:
a. Acknowledgment of validity
b. Consent to injunction
c. Right to dispose of stock on hand
d. Damages for past infringement
3. Dismissal of pending lawsuit

G. Foreign Licensee
1. Definition of licensed subject matter:
a. Exclusion of information prohibited by government
b. Modification by licensee to meet local standards
2. Monetary considerations:

a. Payment in licensor's national currency:
(1) Exchange rate
(2) Alternative payment terms

b. Payment of taxes

c. Evidence of licensee's financial responsibility; letter of credit

3.Terms of agreement subject to:
a. Approval of governments
b. Statutory and regulatory laws; court decisions
c. Opinions of counsel re: patents; agreement validity and enforceability

4. Foreign patent costs:
a. Filing
b. Prosecution
c. Maintenance

5. Improvements by licensee:
a. License of rights
b. Assignment of rights

6. Agreement by licensee not to participate in opposition, revocation or compulsory licensing proceedings

7. Marking of product and license origin
a. Governmental interference

8. Change in voting power of existing stockholders

9. Governing factors
a. Law and place of principal activities
b. Service of process; the Hague convention
c. English or other language version of the agreement

10. Foreign formalities of execution, registration and approval

Summary:
The above list may be used to identify areas of potential concern.  License agreements should be comprehensive.  The various provisions must produce consistent results and definitions should work properly in the context in which they are used.  The above items should provide a basis for structuring and negotiating the specific terms of a transaction.