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How do you ensure that rights to IP can be granted effectively in multiple territories?

August 2019 - Intellectual Property. Legal Developments by IR Global.

More articles by this firm.

The following article discusses session two in the IR Global Virtual Series on 'International IP Licensing - Creating effective contracts'

France - FI We can put in place guarantee clauses that protect the licensor, but that's surely not enough.

What we want to have is a guarantee that the licensee holds the rights, but also a guarantee that the licensee will be fully responsible for the rights granted. If there is a problem, or a claim, then someone has to be fully responsible for that.

We suggest that the licensor attaches the IP rights that have been granted and also the certificate of registration, if it is a trademark.

This can become messy, if, during the course of the contract, the licensee wants to add territory where sometimes the licensor has no protection at all. The licensor then needs to protect that territory. If they have already registered it more than five years ago and it hasn’t been exploited, then the licensor may have lost the ability to licence it again.

It is also possible that a previous registration might be fraudulent. This would prevent the real owner of the licensing rights from registering a territory, until it had been resolved.

All of these things must be mentioned in the contract, which is the responsibility of the licensor. Clauses containing guarantees and declaration have to be very precisely stipulated in the contract, in case of multiple jurisdiction.

Switzerland - SL One of the key things is to make sure that the licensor actually holds the rights, but sometimes you can’t do that before you actually try to register them. As Peggy mentioned before, some IP rights are not registered at all, so that’s something we sometimes have big issues with in international contracts.

I currently have a case with a Swiss franchise company that is going out to Thailand. Their trademark is already registered and they are well known with plenty of restaurants in Switzerland and all over Europe. It’s a big issue to have the restaurant name in Thailand now, which needs to be protected.

I agree with Francois that you have to make the contract as detailed as you can and some schedules and annexes are perfect for that. Although it’s a whole lot of work and they can change rapidly.

Romania - MH Applicable international private law provisions send to the law of origin, that will apply in any related litigation.

In addition, we recommend that the contractual parties take into account the fact that in most cases, the material law applicable to the place of performance of the contract may be an important factor in choosing the jurisdiction also from the place of performance of the contract. In this way, the courts and authorities called upon to resolve any possible dispute in connection with a license agreement are also familiar with material rights in relation to any of the intellectual property rights invoked.

For example, for most intellectual property rights that benefit from registration protection, the special Romanian legislation provides for the license to be published in the Official Gazette of the State Office for Inventions and Trademarks in order to make it opposable to any third party. Any litigation in connection with the contract will raise discussions both in terms of material law and any procedural exceptions deriving from the particular circumstances mentioned.

Courts in Romania benefit from specialized court cases with intellectual property rights, having extensive experience in interpreting and executing licensing contracts for such rights.

Regarding the administrative procedures deriving from the registration of the license agreements, the Bucharest Court of First Instance is the court competent to settle in the first instance any litigation of this nature. In the licensing contracts, we also recommend arbitration seated in the place where the contract is being performed.

U.S – Oklahoma PM Patent law in the US is the exclusive jurisdiction of the federal court. There is a dual trademark system where trademarks can be federal, while each state can also grant their own state trademark, but we typically deal with federal trademarks.

There are a lot of subscription services out there for conducting due diligence and confirming what a licensor is offering. As a result, we do due diligence just as if we were in a transaction of some kind.

We did this recently in fact with another IR Global member, where we were researching the global IP portfolio of an entity. A client was considering licensing it and expanding their business line by bolting on this other company, initially through a license agreement with an option to purchase at some later date.

We conducted the due diligence as if it were an M&A transaction, and discovered some assets the licensor didn't realise they had, because their IP wasn’t centralised. This shows you can gather information and present it to the other side, then let them sort out some of the knots that appear from the searches you’ve conducted.

Another issue that comes up for us, occurs in a joint venture, where licensing arrangements are entered into between two or more parties within a joint venture. The parties are contributing resources, capital and technology to the joint venture operation, and have to decide whether they are going to assign the technology in the IP to the joint venture.

If a joint venturer wishes to retain ownership of contributed technology, we may recommend licensing to the joint venture in the US because the joint venture will typically exploit the technology that's been contributed to it. It may also develop new technology based upon the IP that is contributed to the joint venture.

In such instances, the issue arises around who owns the IP that's created by the joint venture entity. It also arises in agreements between two independent parties that are creating the joint venture, around who is going to own the improvement.

If you're a licensee, you might want to own all the improvements to the technology, however, that can create a situation where, if the licensee creates new improvements, the licensee may not be able to patent them. The licensor might have a blocking patent, or any licensee improvement might not be new or novel enough over the licensed IP.

We can usually get around that in the US by showing some common ownership between the prior art and the new technology patent that's being applied for. For this reason, in the US it is advantageous to have one entity, whether the joint venture or a joint venture party, own the contributed IP and the improvements to it.

Another issue that comes up deals with anti-competition laws. Sometimes, the licensor likes to own the improvements to the technology to maintain its edge in the technology space. In the US, this typically this is ok, but in some other countries, licensee improvements to technology cannot be assigned to the licensor without potentially violating anti-competition laws.

In such countries, if a joint venture entity who has licensed in technology from one of the joint venture partners subsequently creates an improvement to the licensed technology, the joint venture entity would have to own the improvement but could provide rights to the licensor. If it didn’t, the licensing joint venturer could lose total control over its domain of technology because they're not allowed to maintain ownership of any of the improvements created by the joint venture.

U.S – Connecticut - WW I agree with everything that's been said and that the licensor has a strong interest in owning all improvements.

But sometimes I represent the licensee, meaning their requirements need to be met as well. I had one case where a client was buying industrial machines from a client that had them heavily patented. My client in the US was doing a lot of independent work with these machines to develop their own products and wanted to ensure it maintained ownership of its new IP.

That was a difficult negotiation, because the machine owners wanted to own all new IP developed on their machine regardless of their contribution. Ultimately, we were able to agree upon a limited grant back clause in the license, so that licensor would have a limited right to use my client’s inventions. Under the limitation, they couldn't go out and sub-license the new IP to other customers, and were only allowed to use new IP based on the underlying licensed IP.

It's important to consider these provisions when you represent the licensee, because they're trying to carve out their own IP field and you need to be forward thinking about that to ensure the space is there.

Another thing we are always cognizant of with these license agreements, particularly in multiple territories, is including some mechanism in the agreement that ensures that the licensee and its employees will take all steps necessary to comply with the regulation requirements for patents and trademarks.

In the US, for example, there are a lot of requirements for the inventors to sign documents and execute assignments. This might continue for up to 10 years or more after the license or transfer is effective. We can spend a lot of time chasing down people so they can fulfil their obligations. We can reduce this effort by including specific provisions that explicitly require the prompt compliance of the licensee and its employees.

A second part is that, after the license is executed, there is some type of periodic communication between the parties under the IP agreement. Most agreements include a notice provision with specific contacts, however, these change as the company moves locations or is acquired. By maintaining routine communication, the parties can quickly address a problem that arises under the license.

Japan - KY We have seen cases where we can register a trademark in some jurisdictions, but cannot register the same trademark in other jurisdictions. In this event we need to make it clear which are the jurisdictions with and without legislation. We then need to evaluate how likely it is that licensees will successfully obtain registration in the near future.

If licenses have yet to be registered, we should evaluate how risky it is to use the same logo in each jurisdiction without a license. Obviously, we need an indemnification clause in case of infringement by using the licensing agreement.

CONTRIBUTORS

François Illouz (FI) Illouz Avocats - ISGE – France www.irglobal.com/advisor/francois-illouz

Sergio Leemann (SL) Wicki Partners AG – Switzerland www.irglobal.com/advisor/sergio-leemann

Walter B. Welsh (WW) Whitmyer IP Group – US – Connecticut www.irglobal.com/advisor/walter-b-welsh

Peggy Millikin (PM) Millikin IP Law – U.S – Oklahoma www.irglobal.com/advisor/peggy-millikin

Kazuto Yamamoto (KY) Daiichi Legal Professional Corporation – Japan www.irglobal.com/advisor/kazuto-yamamoto

Madalina Hristescu (MH) Hristescu & Partners – Romania www.irglobal.com/advisor/madalina-hristescu