A Master licensing checklist – don’t do this yourself – use your attorney, cheap is expensive.
1. Recitals/Background/Whereas Clauses
The terms “recitals,” “background,” and “whereas clauses” are all used to refer to the introductory section of most agreements. This introduction usually contains the following information:
— the identities of the parties;
— the date the agreement was entered into;
— the parties’ addresses; and
— the goals of the parties to be accomplished by the agreement.
2. Definitions
This section defines certain terms that are to used in the agreement and, importantly, defines the scope of the agreement. Depending on the type of material being licensed, the list of terms among agreements can vary. Further, this section can be located either at the beginning of the agreement or as an exhibit, or definitions of terms can be strewn throughout the agreement.
3. Parties
3.1 Licensee
— How is “licensee” defined?— Does the definition of licensee include the entire company, a certain division, subsidiaries, affiliates, etc.?
— Are there any fees for additional users?
— Does the licensee have to maintain records of all users of the licensed material?
— What if the licensee is an agency of the U.S. government?
3.2 Licensor
— Who is the licensor?— If more than one licensor is involved, who owns what rights in the licensed software?
— Is the licensor responsible for obtaining any licenses from third parties in order for the licensee to use the licensed software?
4. License Grant Clause
4.1 License Grant
— What exactly is being licensed?— trademarks?
— patents?
— software?
— other proprietary information or materials?
— How is the license defined? Is it exclusive, nonexclusive, nontransferable, etc.?
— Does the agreement involve any sort of cross-licensing arrangement between the parties?
4.2 Scope
— What is the scope of the license, i.e., for what purposes can the materials be used?
— Can the scope of the agreement be changed?— If so, must the change be in writing and signed by the parties?
— Is there a definition of the term “use” in the agreement?
— If the license is in the context of a distribution agreement, does the scope of the agreement include territorial restrictions?
4.3 Right to Copy (e.g., software licenses)
— Can the licensee make copies of the licensed material?— If so, for what purposes (e.g., back-up, production, testing, etc.)?
— How many copies can be made?
— In what medium can the copies be made?
— Does the licensee have to include any proprietary, copyright, or trademark legends on the copies?
— Must the licensee act as a “policeman” and notify the licensor of any unauthorized copies that have been made by the licensee’s employees?
4.4 Right to Make Derivative Works
— Is the licensee permitted to make derivative works from the software?
Note:
In some research and development or joint development situations, creating derivative works may be the entire purpose of the transaction.
— What rights does the licensee have in the derivative works?
4.5 Sublicenses
— Is the licensee permitted to sublicense the material?— If so, what amount of royalties or fees must the sublicensee pay?
— Do any sublicenses require approval by the licensor?
— Are there any restrictions?
— What are the terms of the sublicense?— Must the sublicensee execute a separate agreement, or are the terms included in this license agreement?
4.6 Restrictions on Use
— What restrictions is the licensee subject to? For example, a licensee may not be permitted to do the following:— reverse engineer or assemble the software/technology/etc.;
— rent, lease, distribute, or otherwise transfer the licensed materials; and/or
— export the material in violation of federal export laws.
5. Term of License
— What is the term of the license?
— If the term is annual or some other periodic renewal, how are the renewals done?— Are they automatic?
— What notices need to be given; by whom; to whom?
— Can the license be converted into a perpetual license?
6. Payments/Fees
6.1 Fees
— What fees must the licensee pay? License fee? Services fee?
— Must the licensee pay royalties?— If so, how are they calculated?
— How are the fees to be paid?— U.S. currency?
— warrants of stock?
— some other currency?
— When are the various fees due? Annually? Quarterly?
— How are the fees calculated (for international agreements, consider the exchange rate)?
— Are the license fees fixed, or are they subject to escalation?
— Will the licensee be entitled to discounts offered to other licensees?
— Is there a grace period for late payments?
— What are the procedures if an invoice is incorrect?
— What happens with any credits that are due to the licensee?
6.2 Taxes
— Is the licensee obligated to pay all necessary taxes?— If so, is it sufficiently limited so that the licensee only has to pay the taxes that are appropriately assessed against the licensee’s use of the program?
6.3 Nonpayment
— What is the interest rate of any overdue balance?
— What happens if the parties dispute the amount owed?
— What remedies does the licensor have for nonpayment?— Are there disabling devices in the software that the licensor can activate to prevent the licensee from using the software until all overdue amounts are paid?
7. Delivery and Acceptance
7.1 Delivery
— What must be delivered to the licensee (i.e., what are the deliverables)?
— Where is the license material to be delivered?
— When is delivery complete?
— What remedies does the licensee have if the licensor fails to deliver the license materials by the agreed-upon deadline?— Can the licensee cancel the contract? Does the licensee have to provide the licensor with written notice?
— Does the licensor have a right to cure?
— Who pays for shipping or delivery of the licensed materials?
7.2 Acceptance/Acceptance Testing
— When does acceptance occur?
— For software licenses, does the licensee get a reasonable period to test the software?— If so, when does the acceptance test period begin?
— What will the licensee be testing for? Functionality? Compatibility?
— How will errors in the software be handled?
— Will the licensee be able to test the corrected software?
— What remedies does the licensee have if the errors are not corrected?
— Can the licensee cancel the contract?
8. Project Manager
— Do the parties have to each appoint a project manager to facilitate the performance of the agreement?
Note:
This may be a very important consideration in license agreements involving joint development or some other ongoing cooperative arrangement between the parties.
— What specifically will the project managers be responsible for?
9. Maintenance and Support
— Will the licensor provide maintenance for software/hardware/technology?— How long?
— Will the licensor provide maintenance and support for the licensee’s entire company or only for certain affiliates or sections of the company? What about sublicensees?
— What type of support will the licensor provide?— onsite? (If onsite, does the licensee have to reimburse the licensor for any travel or living expenses?)
— offsite?
— telephone support?
— What items will the licensor fix or not fix?
— Will the licensee be charged any fees?
10. Training
— For licenses involving software or technology, will the licensor provide training for the employees of the licensee?
— Will the training be onsite or offsite?
— At what additional cost, if any, will the licensor provide training?
— If training materials are developed by the licensee, who owns rights in those materials?
11. Source Code/Technology Escrow
— If, and when, does the licensee receive the source code for any software that is licensed, or technical specifications for any other technology?
— In what form will the licensor give the source code?
— Must the licensor provide support documentation in order to effectively use the source code?
— Will the source code be kept in escrow by a third-party escrow agent?
— Can the licensee modify the source code?
— What rights does the licensee have in the source code?
— Do the terms of the software license govern the licensee’s use of the source code?
— Must the licensor update the source code?
12. Relationship of the Parties
— What type of relationship do the parties want to establish?
— If the licensee is a consultant, is it expressly stated that the consultant is an independent contractor and not an employee?
13. Quality Control/Quality Assurance
13.1 Quality Control
— Has the licensor established quality control standards for use of any licensed intellectual properties?— Does the licensor require strict compliance with these standards?
— Is the licensee required to submit samples of any products using licensor’s trademarks, copyrights, etc.? Is the licensee obligated to make any changes to these products requested by the licensor?
— Does the license provide for the licensee to adhere strictly to all applicable local, state, and federal laws, regulations, rules, and ordinances? Whose responsibility is it to file any reports or other documents with government regulatory agencies?
13.2 Quality Assurance
— Does the licensor (or its representative) have a right to inspect and approve of the licensee’s production and storage facilities prior to initial production?— May the licensor return for periodic inspections? What amount of notice is required?
— Must the licensee make changes required by the licensor’s quality assurance representative(s)?
14. Confidential Information
— Is there a mutual confidentiality clause, or is the clause directed only toward one party?
— What information must be kept confidential and for how long?
— Under what circumstances can the confidential information be disclosed to a third party?
— Are there provisions obligating the restricted party to get extra confidentiality agreements with its employees or independent contractors?
— At the termination of the agreement, how is the software, related documentation, and any other proprietary information in the possession of the licensee to be handled?— Must these items be returned to the licensor or destroyed?
— What proof must the licensee give to the licensor to show that the material was, in fact, destroyed?
— What about confidential information within the memory of each party’s employees?
— What is the standard of care that the licensee is obliged to exercise?
— Are the terms of the agreement to be kept confidential?
— What remedies does either party have for breach of the confidentiality clause?
15. Warranties/Limitations of Liability/Indemnification
15.1 Warranties
— To whom do the warranties apply?
— The licensor may warrant— its authority to grant the license;
— there are no third-party interests in the licensed materials;
— there is no third-party agreement that will interfere with the agreement between the licensor and licensee;
— software or other product is free from material defects;
— software conforms to published specifications; and/or
— software contains no disabling devices.
— What if there are changes? Do changes or modifications destroy the whole warranty or only the warranty on the parts that are changed?
— Does the licensor warrant that software or other technology does not infringe upon or violate any patent, copyright, trade secret, or any other proprietary or property right?— Will the licensor indemnify the licensee for any such claims made against the licensee?
— The licensee may warrant that— it will comply with all applicable laws and regulations;
— it will comply with all of the licensor’s specifications and requirements; and
— entering into the license agreement does not violate any obligations to or agreements with third parties.
15.2 Limitations of Liability
— Are the limitations of liability in the license mutual?
— What remedies may the licensee receive?— replacement of the licensed materials?
— return or credit for a portion of any payments made?
— With regard to intellectual property, what remedies does the licensee have for infringement by the licensor?— modify or replace the infringing part of the licensed materials?
— procure the licensee’s right to use the infringing material?
— remove all or part of the infringing materials and refund any payments made?
— What restrictions are there on the limitations, i.e., is the licensor restricted from disclaiming liability for personal injury or infringement of property rights?
— What other items will the licensor not be responsible for?— special, incidental, consequential, punitive, or indirect damages?
— failure to perform the contract due to force majeure?
— loss of goodwill?
— profits?
15.3 Indemnification
— For what causes of action will the licensor indemnify the licensee?
— How do the parties define “licensee” for this provision, i.e., will the licensor indemnify subsidiaries, affiliated companies, etc.?
— Must the licensee help with any suits brought by the licensor?
— Is each party responsible for its own attorneys’ fees?
15.4 Insurance
— Does either party have to maintain insurance?
— Are there dollar amount requirements?
— Does the party required to obtain insurance have to give proof of such to the other party?
16. Distribution
— How will the products be delivered from the vendor to the distributor?— Who bears the risk of loss and when?
— Is the distributor’s inventory to be held on consignment?— What happens to the distributor’s inventory when the agreement terminates?
— What is the procedure for filling orders?— How will payments be processed?
— How long does the distributor have to make delivery?
— How are the products to be shipped or delivered?
— What records must be retained by the parties?
— How will customer service issues be handled (e.g., returns, support, etc.)?
— Will the vendor be charged a fee for any orders taken for the products that were not taken through the distributor?
— What marketing responsibilities does each party have?— conducting advertising or promotional campaigns?
— providing links on a party’s Web site(s)?
— Did the vendor grant the distributor a proper trademark license so that the distributor may use the vendor’s trademarks to market the products?
— Is the distribution agreement exclusive?
17. Termination/Default
— Can the licensee terminate the license at any time?— Will the licensee have to pay anything to the licensor?
— What happens to the licensed materials upon termination of the agreement?— Must the licensee return all copies of software and/or technology, plus any related documentation to the licensor?
— If the licensee is required to destroy any of the remaining licensed materials, will the licensee have to certify such destruction to the licensor?
— What events of default will terminate the license?— nonpayment?
— filing of bankruptcy?
— breach of certain provisions?
— discontinuance of business?
— What happens if either party defaults?— Is either party entitled to notice and the opportunity to cure the default?
— If an event of default occurs, will there be any fees due?
— Are there any license obligations that survive the termination of the license?
— Are there any fees due?
18. Audits
— Must the licensee permit the licensor to audit its use of the licensed materials?
— How frequently will the audits be conducted?
— In what manner will the audits be conducted?
— Who bears the expense of the audits?
— What happens if a discrepancy is found on either party’s part?
19. Assignments
— Is either party permitted to assign the license and under what conditions?
— Are there any restrictions?
20. Publicity
— Does the licensee have to participate in any publicity activities on behalf of the licensor?
21. Export Controls
— Pursuant to federal regulation, is the licensee prohibited from distributing the software to certain countries?
22. Restrictions on Hiring
— Does the license restrict the licensee from hiring any of the licensor’s employees (and restrict the licensor from hiring the licensee’s employees)?— If so, how are “licensee” and “licensor” defined? Are the definitions so broad that this provision may be impossible to comply with?
23. Noncompetition
— Is either party restricted from entering into certain deals with other parties?
— Is either party prohibited from selling the licensed materials, or similar materials, in a certain manner, i.e., the licensee must sell the licensor’s software as a package with its own software and not by itself?
24. Records
— Does the license have a provision that obligates the licensee to maintain any records? — If so, does the licensee understand the reason for the provision and agree that those records will normally be maintained?
25. Trademark License
— Is a trademark license included in the agreement?
— Does the provision set forth, at minimum, the basic requirements for a trademark license (e.g., does it address quality control, use, etc.)?
26. Dispute Provisions
— How are disputes to be handled?— through the courts?
— through some type of alternative dispute resolution procedure?
— Is there a choice of law provision?
— Who pays for the parties’ attorneys’ fees?
— Is there a time limitation within which each party needs to bring certain claims?
27. Miscellaneous Provisions
Most license agreements should also contain the following general provisions:
27.1 Force Majeure
27.2 Entire Agreement
27.3 Captions/Headings
27.4 Notices
27.5 Severability
27.6 Compliance with Laws
27.7 No Waiver
27.8 Time of the Essence
27.9 Attorneys’ Fees
Formbook of Contracts and Agreements
Database updated January 2014
Part XVII. Licensing/Intellectual Property Agreements
Chapter 27. Sample Licensing/Intellectual Property Agreements
I. Checklists
§ 27:2. Checklist for database/content licenses
Editor’s Note:
Databases have always been valuable assets, but they have become even more so because of the Internet. There are dozens of different types of databases, including databases of medical and pharmaceutical information that can be licensed to health-related Web sites; supply databases that can be used to manage supply costs; and publishers’ troves of articles and other information. Following is a checklist of issues to consider when preparing a database/content license.
1. Definitions
Most database/content licenses will begin with a series of definitions, which are then used as “terms of art” throughout the license. Some of these definitions are of a general nature and substantive. Examples include “Territory,” “Program Errors,” and “Licensed Property.” Other definitions relate only to the specific transactions. These might include definitions relating to the parties.
2. The Basic License Grant
The grant sections are perhaps the most important in any license—and a database/content license is no exception. Following are some items often covered:
— exclusivity—including licenses to others and the owner’s own use of the database;
— sublicensing rights (the basic point of many of these licenses is that the licensee will be offering “subscriptions” to its customers to access the data. The basic grant clause might address this, and there are often specific sections dealing with these subscriptions—hence, we also include another item on our checklist for them);
— field of use provisions;
— location—including, perhaps, specific computers on which the database may be installed;
— the number of simultaneous users (sometimes called “seats” and often further dealt with in the definitions or other sections of the license);
— the extent to which trademarks of the licensor can be used;
— the term of the license; and
— what hyperlinks are allowed or required?
3. The Vendor/Licensor Obligations
— How and when will the vendor deliver the database?
— By what medium?
— Will delivery take place only after the customer pays in full or makes an initial payment?
— What about risk of loss?
— When, and under what conditions, will updates be provided (sometimes dealt with extensively in a separate section)?
— What implementation support will the vendor provide? (Support and training are often in a separate section.)
— Will the vendor provide any support or training to the customers subscribers/licensees?
— How will changes/developments in the database be handled?
— To what extent can the customer suggest changes, and what are the obligations of the licensor if that occurs (same issue might be presented in the context of changes or suggestions of the customer’s licensees/subscribers)?
4. Customer/Licensee Obligations
— What are the customers obligations to protect the integrity of, control access to, and prevent unauthorized use of the database (sometimes addressed in a confidentiality section)?
— If it is necessary to accurately record useage of the database (for example, to compute royalties) the details of this should be spelled out (often done in a separate section).
— If the customer will make the database available to third parties on the Internet, additional obligations may be necessary to ensure security, protect proprietary information, and ensure accurate record usage. They might include
— offering the database behind firewalls;
— including statements to third parties that warn against unauthorized use, giving copyright notices, and providing database warranties and disclaimers;
— providing a certain level of support to third-party users;
— promptly delivering updates of the database;
— providing usage data; and
— being responsible for third-party license fees/royalties.
Note: A difficult negotiation point often relates to the language which may obligate the customer to guarantee that third parties will not misuse the database. Third parties may be difficult to control or even identify.
Editor’s Note:
Some database and content licenses are “mutual” in the sense that each party licenses content to the other. In some of those licenses, the obligations of the vendor and customer are often also mutual and contained in a single set of provisions.
5. Compensation/Payments/Royalties
— Lump-sum payment up front for a paid up license?
— Installment payments?
— Payments based on usage—royalties?
— When are royalties payable and on what basis?
— What statements/reports are to be called for?
— Possibilities for increases or decreases in royalty payments?
— Effect of termination on royalties?
— Will customer be required to continue to pay royalties after termination until all royalties are paid?
— Method and time of payments?
— Finance charges for late payments?
— Payment for additional services (such as training, modifications, updates)?
— Are the payment provisions sufficiently detailed that they might better be placed in an exhibit or appendix?
— Would sample payment calculations be helpful?
6. Term of the License
— The initial term?
— Renewal provisions?
— Automatic?
— At someone’s option?
— Consents required?
— Notices?
7. Intellectual Property Protections
— Customer to acknowledge the validity and ownership of the licensor’s copyrights and trademarks?
— Details on whether/how the customer can use the vendor’s trademarks?
— Copyright notices?
— What provisions may be appropriate in any agreements between the customer and its subscribers/licensees?
— Customer to acknowledge the licensor’s ownership of the database?
— What about changes/additions made by the customer?
— Clause specifically allowing injunctive relief for violation or threatened violation?
8. Confidentiality and Nondisclosure
— Careful identification of exactly what is confidential information and subject to the duty to protect it?
— Exactly what must the customer do to protect the information?
— How long does this duty exist (generally survives the termination of the relationship for at least some period)?
— Permitted disclosure to consultants or other independent contractors?
— Any restrictions on which employees of the customer have access to the confidential information?
— What about the agreement itself and its details—such as pricing?
— Normal exceptions for information in the public domain?
— What happens if one party has to disclose the information to the government or in litigation? (Normally, the other party is given notice of such claims.)
9. Noncompetition
— Restrictions against the customer developing a competitive database?
— Restrictions against the customer sublicensing in a way that would be competitive with the owner’s intended marketing?
— Exclusivity—restrictions against the owner licensing the database to competitors of the customer?
— Provision negating any exclusivity?
— Clarification that any noncompetition features relate only to the database at hand, not competition in general between the parties?
10. Warranties, Disclaimers, and Limitations of Remedy
— Normal vendor warranties that might include:
— Vendor is authorized to enter into agreement?
— Database and documentation does not infringe any copyright, trade secret, trademark, or contract rights of third parties?
— Software and services will be as described? (Vendor may want to expressly disclaim any warranty that the software or database is free of defects.)
— Normal vendor disclaimers?
— No warranty of fitness for purpose?
— No warranty of merchantability?
— Database and software are provided “as is”?
— Customer may warrant that it can fulfill its obligations under the agreement; it is authorized to enter into it; and will not itself knowingly misuse the database?
— Normal limitations of remedy—no consequential damages, no damages over a certain dollar figure?
— Special Situation disclaimers? For example, in a medically related database license, there might be disclaimers about using the information for specific patient care decisions; in a law-related database, there may be disclaimers about using the content for specific legal advice, etc.
11. Indemnification
— Vendor indemnifies customer against third-party claims that the database or software infringes copyright or other intellectual property?
— Customer indemnifies vendor if its own use of the database is found to infringe others’ intellectual property?
— Procedures for making any indemnification claims; limits on the amount of indemnification; payment of attorneys’ fees and defense costs; responsibilities for actually handling litigation defense; and coordination of the defense?
12. Termination
— Breach that is not cured after notice?
— Insolvency, failure to pay debts as due?
— Dissolved, liquidated?
— Royalties to the owner decrease below permitted minimums?
— Customer may terminate if quality of the database deteriorates?
— Customer’s right to terminate if vendor decreases services, fails to maintain, etc.?
— Exact mechanics on termination—customer returns everything, destroys everything, warrants that it has done so?
— Consider the effect of termination of the agreement between the vendor and the customer on the customers subscribers/sublicensees. (Often a fairly elaborate transition program is included.)
13. Records, Reports, and Audits
— Often helpful to include sample/illustrative reports or forms of records in an exhibit.
— Vendor usually pays for any audit, unless the audit shows that the customer underpaid by a certain amount, in which case, the customer has to pay for the audit, as well as make up the appropriate payments.
14. Technical Support and Training
— Often described in an exhibit.
— Consider separate agreement, if extensive.
15. General Provisions
— Force majeure;
— Prohibition of assignment (change of control of either party);
— Counterparts;
— Notices;
— Severability;
— Parties can excuse performance without waiver;
— Joint venture or partnership disclaimed;
— Arbitration or other ADR provision (but often specifically excludes disputes relating to intellectual property);
— Attorneys’ fees to prevailing party;
— Public announcements/press releases;
— Choice of law/choice of forum; and
— Export control provision. see your attorney for more information.
1. Recitals/Background/Whereas Clauses
The terms “recitals,” “background,” and “whereas clauses” are all used to refer to the introductory section of most agreements. This introduction usually contains the following information:
— the identities of the parties;
— the date the agreement was entered into;
— the parties’ addresses; and
— the goals of the parties to be accomplished by the agreement.
2. Definitions
This section defines certain terms that are to used in the agreement and, importantly, defines the scope of the agreement. Depending on the type of material being licensed, the list of terms among agreements can vary. Further, this section can be located either at the beginning of the agreement or as an exhibit, or definitions of terms can be strewn throughout the agreement.
3. Parties
3.1 Licensee
— How is “licensee” defined?— Does the definition of licensee include the entire company, a certain division, subsidiaries, affiliates, etc.?
— Are there any fees for additional users?
— Does the licensee have to maintain records of all users of the licensed material?
— What if the licensee is an agency of the U.S. government?
3.2 Licensor
— Who is the licensor?— If more than one licensor is involved, who owns what rights in the licensed software?
— Is the licensor responsible for obtaining any licenses from third parties in order for the licensee to use the licensed software?
4. License Grant Clause
4.1 License Grant
— What exactly is being licensed?— trademarks?
— patents?
— software?
— other proprietary information or materials?
— How is the license defined? Is it exclusive, nonexclusive, nontransferable, etc.?
— Does the agreement involve any sort of cross-licensing arrangement between the parties?
4.2 Scope
— What is the scope of the license, i.e., for what purposes can the materials be used?
— Can the scope of the agreement be changed?— If so, must the change be in writing and signed by the parties?
— Is there a definition of the term “use” in the agreement?
— If the license is in the context of a distribution agreement, does the scope of the agreement include territorial restrictions?
4.3 Right to Copy (e.g., software licenses)
— Can the licensee make copies of the licensed material?— If so, for what purposes (e.g., back-up, production, testing, etc.)?
— How many copies can be made?
— In what medium can the copies be made?
— Does the licensee have to include any proprietary, copyright, or trademark legends on the copies?
— Must the licensee act as a “policeman” and notify the licensor of any unauthorized copies that have been made by the licensee’s employees?
4.4 Right to Make Derivative Works
— Is the licensee permitted to make derivative works from the software?
Note:
In some research and development or joint development situations, creating derivative works may be the entire purpose of the transaction.
— What rights does the licensee have in the derivative works?
4.5 Sublicenses
— Is the licensee permitted to sublicense the material?— If so, what amount of royalties or fees must the sublicensee pay?
— Do any sublicenses require approval by the licensor?
— Are there any restrictions?
— What are the terms of the sublicense?— Must the sublicensee execute a separate agreement, or are the terms included in this license agreement?
4.6 Restrictions on Use
— What restrictions is the licensee subject to? For example, a licensee may not be permitted to do the following:— reverse engineer or assemble the software/technology/etc.;
— rent, lease, distribute, or otherwise transfer the licensed materials; and/or
— export the material in violation of federal export laws.
5. Term of License
— What is the term of the license?
— If the term is annual or some other periodic renewal, how are the renewals done?— Are they automatic?
— What notices need to be given; by whom; to whom?
— Can the license be converted into a perpetual license?
6. Payments/Fees
6.1 Fees
— What fees must the licensee pay? License fee? Services fee?
— Must the licensee pay royalties?— If so, how are they calculated?
— How are the fees to be paid?— U.S. currency?
— warrants of stock?
— some other currency?
— When are the various fees due? Annually? Quarterly?
— How are the fees calculated (for international agreements, consider the exchange rate)?
— Are the license fees fixed, or are they subject to escalation?
— Will the licensee be entitled to discounts offered to other licensees?
— Is there a grace period for late payments?
— What are the procedures if an invoice is incorrect?
— What happens with any credits that are due to the licensee?
6.2 Taxes
— Is the licensee obligated to pay all necessary taxes?— If so, is it sufficiently limited so that the licensee only has to pay the taxes that are appropriately assessed against the licensee’s use of the program?
6.3 Nonpayment
— What is the interest rate of any overdue balance?
— What happens if the parties dispute the amount owed?
— What remedies does the licensor have for nonpayment?— Are there disabling devices in the software that the licensor can activate to prevent the licensee from using the software until all overdue amounts are paid?
7. Delivery and Acceptance
7.1 Delivery
— What must be delivered to the licensee (i.e., what are the deliverables)?
— Where is the license material to be delivered?
— When is delivery complete?
— What remedies does the licensee have if the licensor fails to deliver the license materials by the agreed-upon deadline?— Can the licensee cancel the contract? Does the licensee have to provide the licensor with written notice?
— Does the licensor have a right to cure?
— Who pays for shipping or delivery of the licensed materials?
7.2 Acceptance/Acceptance Testing
— When does acceptance occur?
— For software licenses, does the licensee get a reasonable period to test the software?— If so, when does the acceptance test period begin?
— What will the licensee be testing for? Functionality? Compatibility?
— How will errors in the software be handled?
— Will the licensee be able to test the corrected software?
— What remedies does the licensee have if the errors are not corrected?
— Can the licensee cancel the contract?
8. Project Manager
— Do the parties have to each appoint a project manager to facilitate the performance of the agreement?
Note:
This may be a very important consideration in license agreements involving joint development or some other ongoing cooperative arrangement between the parties.
— What specifically will the project managers be responsible for?
9. Maintenance and Support
— Will the licensor provide maintenance for software/hardware/technology?— How long?
— Will the licensor provide maintenance and support for the licensee’s entire company or only for certain affiliates or sections of the company? What about sublicensees?
— What type of support will the licensor provide?— onsite? (If onsite, does the licensee have to reimburse the licensor for any travel or living expenses?)
— offsite?
— telephone support?
— What items will the licensor fix or not fix?
— Will the licensee be charged any fees?
10. Training
— For licenses involving software or technology, will the licensor provide training for the employees of the licensee?
— Will the training be onsite or offsite?
— At what additional cost, if any, will the licensor provide training?
— If training materials are developed by the licensee, who owns rights in those materials?
11. Source Code/Technology Escrow
— If, and when, does the licensee receive the source code for any software that is licensed, or technical specifications for any other technology?
— In what form will the licensor give the source code?
— Must the licensor provide support documentation in order to effectively use the source code?
— Will the source code be kept in escrow by a third-party escrow agent?
— Can the licensee modify the source code?
— What rights does the licensee have in the source code?
— Do the terms of the software license govern the licensee’s use of the source code?
— Must the licensor update the source code?
12. Relationship of the Parties
— What type of relationship do the parties want to establish?
— If the licensee is a consultant, is it expressly stated that the consultant is an independent contractor and not an employee?
13. Quality Control/Quality Assurance
13.1 Quality Control
— Has the licensor established quality control standards for use of any licensed intellectual properties?— Does the licensor require strict compliance with these standards?
— Is the licensee required to submit samples of any products using licensor’s trademarks, copyrights, etc.? Is the licensee obligated to make any changes to these products requested by the licensor?
— Does the license provide for the licensee to adhere strictly to all applicable local, state, and federal laws, regulations, rules, and ordinances? Whose responsibility is it to file any reports or other documents with government regulatory agencies?
13.2 Quality Assurance
— Does the licensor (or its representative) have a right to inspect and approve of the licensee’s production and storage facilities prior to initial production?— May the licensor return for periodic inspections? What amount of notice is required?
— Must the licensee make changes required by the licensor’s quality assurance representative(s)?
14. Confidential Information
— Is there a mutual confidentiality clause, or is the clause directed only toward one party?
— What information must be kept confidential and for how long?
— Under what circumstances can the confidential information be disclosed to a third party?
— Are there provisions obligating the restricted party to get extra confidentiality agreements with its employees or independent contractors?
— At the termination of the agreement, how is the software, related documentation, and any other proprietary information in the possession of the licensee to be handled?— Must these items be returned to the licensor or destroyed?
— What proof must the licensee give to the licensor to show that the material was, in fact, destroyed?
— What about confidential information within the memory of each party’s employees?
— What is the standard of care that the licensee is obliged to exercise?
— Are the terms of the agreement to be kept confidential?
— What remedies does either party have for breach of the confidentiality clause?
15. Warranties/Limitations of Liability/Indemnification
15.1 Warranties
— To whom do the warranties apply?
— The licensor may warrant— its authority to grant the license;
— there are no third-party interests in the licensed materials;
— there is no third-party agreement that will interfere with the agreement between the licensor and licensee;
— software or other product is free from material defects;
— software conforms to published specifications; and/or
— software contains no disabling devices.
— What if there are changes? Do changes or modifications destroy the whole warranty or only the warranty on the parts that are changed?
— Does the licensor warrant that software or other technology does not infringe upon or violate any patent, copyright, trade secret, or any other proprietary or property right?— Will the licensor indemnify the licensee for any such claims made against the licensee?
— The licensee may warrant that— it will comply with all applicable laws and regulations;
— it will comply with all of the licensor’s specifications and requirements; and
— entering into the license agreement does not violate any obligations to or agreements with third parties.
15.2 Limitations of Liability
— Are the limitations of liability in the license mutual?
— What remedies may the licensee receive?— replacement of the licensed materials?
— return or credit for a portion of any payments made?
— With regard to intellectual property, what remedies does the licensee have for infringement by the licensor?— modify or replace the infringing part of the licensed materials?
— procure the licensee’s right to use the infringing material?
— remove all or part of the infringing materials and refund any payments made?
— What restrictions are there on the limitations, i.e., is the licensor restricted from disclaiming liability for personal injury or infringement of property rights?
— What other items will the licensor not be responsible for?— special, incidental, consequential, punitive, or indirect damages?
— failure to perform the contract due to force majeure?
— loss of goodwill?
— profits?
15.3 Indemnification
— For what causes of action will the licensor indemnify the licensee?
— How do the parties define “licensee” for this provision, i.e., will the licensor indemnify subsidiaries, affiliated companies, etc.?
— Must the licensee help with any suits brought by the licensor?
— Is each party responsible for its own attorneys’ fees?
15.4 Insurance
— Does either party have to maintain insurance?
— Are there dollar amount requirements?
— Does the party required to obtain insurance have to give proof of such to the other party?
16. Distribution
— How will the products be delivered from the vendor to the distributor?— Who bears the risk of loss and when?
— Is the distributor’s inventory to be held on consignment?— What happens to the distributor’s inventory when the agreement terminates?
— What is the procedure for filling orders?— How will payments be processed?
— How long does the distributor have to make delivery?
— How are the products to be shipped or delivered?
— What records must be retained by the parties?
— How will customer service issues be handled (e.g., returns, support, etc.)?
— Will the vendor be charged a fee for any orders taken for the products that were not taken through the distributor?
— What marketing responsibilities does each party have?— conducting advertising or promotional campaigns?
— providing links on a party’s Web site(s)?
— Did the vendor grant the distributor a proper trademark license so that the distributor may use the vendor’s trademarks to market the products?
— Is the distribution agreement exclusive?
17. Termination/Default
— Can the licensee terminate the license at any time?— Will the licensee have to pay anything to the licensor?
— What happens to the licensed materials upon termination of the agreement?— Must the licensee return all copies of software and/or technology, plus any related documentation to the licensor?
— If the licensee is required to destroy any of the remaining licensed materials, will the licensee have to certify such destruction to the licensor?
— What events of default will terminate the license?— nonpayment?
— filing of bankruptcy?
— breach of certain provisions?
— discontinuance of business?
— What happens if either party defaults?— Is either party entitled to notice and the opportunity to cure the default?
— If an event of default occurs, will there be any fees due?
— Are there any license obligations that survive the termination of the license?
— Are there any fees due?
18. Audits
— Must the licensee permit the licensor to audit its use of the licensed materials?
— How frequently will the audits be conducted?
— In what manner will the audits be conducted?
— Who bears the expense of the audits?
— What happens if a discrepancy is found on either party’s part?
19. Assignments
— Is either party permitted to assign the license and under what conditions?
— Are there any restrictions?
20. Publicity
— Does the licensee have to participate in any publicity activities on behalf of the licensor?
21. Export Controls
— Pursuant to federal regulation, is the licensee prohibited from distributing the software to certain countries?
22. Restrictions on Hiring
— Does the license restrict the licensee from hiring any of the licensor’s employees (and restrict the licensor from hiring the licensee’s employees)?— If so, how are “licensee” and “licensor” defined? Are the definitions so broad that this provision may be impossible to comply with?
23. Noncompetition
— Is either party restricted from entering into certain deals with other parties?
— Is either party prohibited from selling the licensed materials, or similar materials, in a certain manner, i.e., the licensee must sell the licensor’s software as a package with its own software and not by itself?
24. Records
— Does the license have a provision that obligates the licensee to maintain any records? — If so, does the licensee understand the reason for the provision and agree that those records will normally be maintained?
25. Trademark License
— Is a trademark license included in the agreement?
— Does the provision set forth, at minimum, the basic requirements for a trademark license (e.g., does it address quality control, use, etc.)?
26. Dispute Provisions
— How are disputes to be handled?— through the courts?
— through some type of alternative dispute resolution procedure?
— Is there a choice of law provision?
— Who pays for the parties’ attorneys’ fees?
— Is there a time limitation within which each party needs to bring certain claims?
27. Miscellaneous Provisions
Most license agreements should also contain the following general provisions:
27.1 Force Majeure
27.2 Entire Agreement
27.3 Captions/Headings
27.4 Notices
27.5 Severability
27.6 Compliance with Laws
27.7 No Waiver
27.8 Time of the Essence
27.9 Attorneys’ Fees
Formbook of Contracts and Agreements
Database updated January 2014
Part XVII. Licensing/Intellectual Property Agreements
Chapter 27. Sample Licensing/Intellectual Property Agreements
I. Checklists
§ 27:2. Checklist for database/content licenses
Editor’s Note:
Databases have always been valuable assets, but they have become even more so because of the Internet. There are dozens of different types of databases, including databases of medical and pharmaceutical information that can be licensed to health-related Web sites; supply databases that can be used to manage supply costs; and publishers’ troves of articles and other information. Following is a checklist of issues to consider when preparing a database/content license.
1. Definitions
Most database/content licenses will begin with a series of definitions, which are then used as “terms of art” throughout the license. Some of these definitions are of a general nature and substantive. Examples include “Territory,” “Program Errors,” and “Licensed Property.” Other definitions relate only to the specific transactions. These might include definitions relating to the parties.
2. The Basic License Grant
The grant sections are perhaps the most important in any license—and a database/content license is no exception. Following are some items often covered:
— exclusivity—including licenses to others and the owner’s own use of the database;
— sublicensing rights (the basic point of many of these licenses is that the licensee will be offering “subscriptions” to its customers to access the data. The basic grant clause might address this, and there are often specific sections dealing with these subscriptions—hence, we also include another item on our checklist for them);
— field of use provisions;
— location—including, perhaps, specific computers on which the database may be installed;
— the number of simultaneous users (sometimes called “seats” and often further dealt with in the definitions or other sections of the license);
— the extent to which trademarks of the licensor can be used;
— the term of the license; and
— what hyperlinks are allowed or required?
3. The Vendor/Licensor Obligations
— How and when will the vendor deliver the database?
— By what medium?
— Will delivery take place only after the customer pays in full or makes an initial payment?
— What about risk of loss?
— When, and under what conditions, will updates be provided (sometimes dealt with extensively in a separate section)?
— What implementation support will the vendor provide? (Support and training are often in a separate section.)
— Will the vendor provide any support or training to the customers subscribers/licensees?
— How will changes/developments in the database be handled?
— To what extent can the customer suggest changes, and what are the obligations of the licensor if that occurs (same issue might be presented in the context of changes or suggestions of the customer’s licensees/subscribers)?
4. Customer/Licensee Obligations
— What are the customers obligations to protect the integrity of, control access to, and prevent unauthorized use of the database (sometimes addressed in a confidentiality section)?
— If it is necessary to accurately record useage of the database (for example, to compute royalties) the details of this should be spelled out (often done in a separate section).
— If the customer will make the database available to third parties on the Internet, additional obligations may be necessary to ensure security, protect proprietary information, and ensure accurate record usage. They might include
— offering the database behind firewalls;
— including statements to third parties that warn against unauthorized use, giving copyright notices, and providing database warranties and disclaimers;
— providing a certain level of support to third-party users;
— promptly delivering updates of the database;
— providing usage data; and
— being responsible for third-party license fees/royalties.
Note: A difficult negotiation point often relates to the language which may obligate the customer to guarantee that third parties will not misuse the database. Third parties may be difficult to control or even identify.
Editor’s Note:
Some database and content licenses are “mutual” in the sense that each party licenses content to the other. In some of those licenses, the obligations of the vendor and customer are often also mutual and contained in a single set of provisions.
5. Compensation/Payments/Royalties
— Lump-sum payment up front for a paid up license?
— Installment payments?
— Payments based on usage—royalties?
— When are royalties payable and on what basis?
— What statements/reports are to be called for?
— Possibilities for increases or decreases in royalty payments?
— Effect of termination on royalties?
— Will customer be required to continue to pay royalties after termination until all royalties are paid?
— Method and time of payments?
— Finance charges for late payments?
— Payment for additional services (such as training, modifications, updates)?
— Are the payment provisions sufficiently detailed that they might better be placed in an exhibit or appendix?
— Would sample payment calculations be helpful?
6. Term of the License
— The initial term?
— Renewal provisions?
— Automatic?
— At someone’s option?
— Consents required?
— Notices?
7. Intellectual Property Protections
— Customer to acknowledge the validity and ownership of the licensor’s copyrights and trademarks?
— Details on whether/how the customer can use the vendor’s trademarks?
— Copyright notices?
— What provisions may be appropriate in any agreements between the customer and its subscribers/licensees?
— Customer to acknowledge the licensor’s ownership of the database?
— What about changes/additions made by the customer?
— Clause specifically allowing injunctive relief for violation or threatened violation?
8. Confidentiality and Nondisclosure
— Careful identification of exactly what is confidential information and subject to the duty to protect it?
— Exactly what must the customer do to protect the information?
— How long does this duty exist (generally survives the termination of the relationship for at least some period)?
— Permitted disclosure to consultants or other independent contractors?
— Any restrictions on which employees of the customer have access to the confidential information?
— What about the agreement itself and its details—such as pricing?
— Normal exceptions for information in the public domain?
— What happens if one party has to disclose the information to the government or in litigation? (Normally, the other party is given notice of such claims.)
9. Noncompetition
— Restrictions against the customer developing a competitive database?
— Restrictions against the customer sublicensing in a way that would be competitive with the owner’s intended marketing?
— Exclusivity—restrictions against the owner licensing the database to competitors of the customer?
— Provision negating any exclusivity?
— Clarification that any noncompetition features relate only to the database at hand, not competition in general between the parties?
10. Warranties, Disclaimers, and Limitations of Remedy
— Normal vendor warranties that might include:
— Vendor is authorized to enter into agreement?
— Database and documentation does not infringe any copyright, trade secret, trademark, or contract rights of third parties?
— Software and services will be as described? (Vendor may want to expressly disclaim any warranty that the software or database is free of defects.)
— Normal vendor disclaimers?
— No warranty of fitness for purpose?
— No warranty of merchantability?
— Database and software are provided “as is”?
— Customer may warrant that it can fulfill its obligations under the agreement; it is authorized to enter into it; and will not itself knowingly misuse the database?
— Normal limitations of remedy—no consequential damages, no damages over a certain dollar figure?
— Special Situation disclaimers? For example, in a medically related database license, there might be disclaimers about using the information for specific patient care decisions; in a law-related database, there may be disclaimers about using the content for specific legal advice, etc.
11. Indemnification
— Vendor indemnifies customer against third-party claims that the database or software infringes copyright or other intellectual property?
— Customer indemnifies vendor if its own use of the database is found to infringe others’ intellectual property?
— Procedures for making any indemnification claims; limits on the amount of indemnification; payment of attorneys’ fees and defense costs; responsibilities for actually handling litigation defense; and coordination of the defense?
12. Termination
— Breach that is not cured after notice?
— Insolvency, failure to pay debts as due?
— Dissolved, liquidated?
— Royalties to the owner decrease below permitted minimums?
— Customer may terminate if quality of the database deteriorates?
— Customer’s right to terminate if vendor decreases services, fails to maintain, etc.?
— Exact mechanics on termination—customer returns everything, destroys everything, warrants that it has done so?
— Consider the effect of termination of the agreement between the vendor and the customer on the customers subscribers/sublicensees. (Often a fairly elaborate transition program is included.)
13. Records, Reports, and Audits
— Often helpful to include sample/illustrative reports or forms of records in an exhibit.
— Vendor usually pays for any audit, unless the audit shows that the customer underpaid by a certain amount, in which case, the customer has to pay for the audit, as well as make up the appropriate payments.
14. Technical Support and Training
— Often described in an exhibit.
— Consider separate agreement, if extensive.
15. General Provisions
— Force majeure;
— Prohibition of assignment (change of control of either party);
— Counterparts;
— Notices;
— Severability;
— Parties can excuse performance without waiver;
— Joint venture or partnership disclaimed;
— Arbitration or other ADR provision (but often specifically excludes disputes relating to intellectual property);
— Attorneys’ fees to prevailing party;
— Public announcements/press releases;
— Choice of law/choice of forum; and
— Export control provision. see your attorney for more information.
© 2014 Thomson Reuters. No claim to original U.S. Government Works.
