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Technology - Distribution & Licensing Agreements

A technology distribution and  licensing agreement is a contract which transfers technology and associated legal rights between parties primarily for the purpose of fostering an ongoing business relationship. The owner of the technology (or the party with authority to control its use) is the "licensor". The party that is granted the right or license to use the technology according to the terms of the contract is the "licensee". The grant of a license is not an outright assignment of the technology but is actually more in the form of a lease since the licensor retains ultimate ownership of the intellectual property. Once the license expires, the rights granted to the licensee revert back to the licensor.

A risk inherent in any technology-based relationship is that the licensed technology may be legally challenged by third parties or there may be a need to institute an action against infringers. In that regard, both the licensor and the licensee usually agree to notify the other of possible infringement of the licensed rights and of any pending or threatened infringement claims by third parties. The parties normally will agree upon which party will have the right to institute and control any litigation, how the costs and expenses of litigation will be allocated between the parties, and how any money judgments will be distributed. When a third party files suit either challenging the validity of the licensed rights or accusing the licensee and/or licensor of infringing the third party's intellectual property rights, there should be a similar understanding regarding the defense of such an action.

There are various recipes for disaster in drafting and negotiating such technology licensing agreements. Clearly, agreements prepared by those with a shallow understanding of how the intellectual property rights to be licensed operate can lead to some extremely undesirable results. Ignoring or providing tacit attention to regulating authorities can result in provisions of an agreement that are unenforceable or entire agreements that are essentially invalid. In short, the negotiation and preparation of licensing agreements should never be equated to the preparation of the simpler, ordinary contracts, which usually involve much shorter time spans and more easily understood property rights. This is particularly true when international entities are the parties to the proposed agreement.  While it is certainly true, that not all technology licensing agreements are created equal in complexity, no matter the sophistication of the transaction it is vital to specifically identify both the technology being licensed and the specific bundle of rights being licensed.