Tag Archives: licensor

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What Does “Affiliates” Really Mean?

It is common for many licensing agreements to grant a license to a particular entity and its “affiliates.” The contact may even define what the term “affiliates” means, but this doesn’t always mean that the definition includes all of the parties that were intended to be included.

For example, does a license that is granted to an entity and its affiliates include only those affiliates that existed on the effective date of the license agreement? Does it include affiliates that are established after the contract was formed? According to the Court of Appeals of the State of New York, the license is limited to affiliates that were in existence on the contract effective date, unless the agreement expressly states otherwise.

It is typically beneficial for the licensee if the contract broadly defines affiliates, but the New York case demonstrates that it may also be beneficial to the licensor under some circumstances. In the case of Ellington v. EMI Music, Inc., the parties’ dispute centered on the terms of a royalty provision of a 1961 copyright renewal agreement. The parties to the contract were the legendary musician Duke Ellington and a group of music publishers, including the predecessor to EMI Music. Ellington and his heirs were entitled to 50% of the net revenues resulting from the sales by EMI and its affiliates.

Subsequent to the 1961 agreement, EMI created new affiliated foreign entities that were granted sublicenses. EMI paid the heirs of Ellington half of the net revenue that EMI received from the new, affiliated foreign sub-licensees. However, Ellington’s heirs argued that because the foreign entities were affiliates of EMI, they were also entitled to 50% of the foreign affialites net revenues as sub-licensees as well.

The court rejected the heirs’ argument because the contract did not contain forward-looking language. Thus, without the written agreement showing the parties’ intent to bind newly created affiliates, the term affiliates only included those affiliates existing at the time the agreement was executed.

As the Ellington case demonstrates, it is possible that having a broad definition of “affiliates” could benefit the licensor, especially if it could bring more entities into a more lucrative royalty structure.

If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.

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The Scope of the License in Software Licensing Agreements

Licensor’s Perspective

If you are the owner of software and you want to allow other parties the right to use the software while maintaining ownership and control over it, you need a software licensing agreement. As a licensor, you can limit the scope of the license by defining how and for what purpose the licensee is allowed to use the software. A restricted license only allows the licensee to use the object code of the software, not the software’s source code. A licensor may also want to further restrict the license by limiting:

  • Fields of use (for example, for use only at the licensee’s internal business purposes)
  • Geographic use restrictions
  • The number of concurrent users allowed
  • The hardware upon which the licensed software may be used
  • The ability to transfer the software license

A licensor is more likely to seek additional revenue by enforcing the scope restrictions in an economic downturn. Thus, restrictions on the ability to transfer the license can allow the licensor the ability to extract additional fees if the licensee wants to assign the license.

Licensee’s Perspective

A licensee typically seeks to negotiate a broader license to help ensure it has adequate rights to use the software as needed. If a licensee does not sufficiently negotiate the ‘terms of use’ and later discovers it must exceed the restrictions, the licensee will have to renegotiate and likely pay additional fees. Thus, it is important for the licensee to carefully consider what its future needs of the software will be. If this is not a known factor, the licensee may consider including a means for increasing the limits imposed by the licensor in the contract, and specifying the amount to be paid for the changes. Finally, and particularly if the licensee is paying for development of all or a portion of the software, a licensee may wish to negotiate to have the exclusive right to use the licensed software in order to prevent other parties or competitors from being able to use the software.

When parties are negotiating a software licensing agreement, it is imperative that both the licensor and the licensee pay close attention to the provision regarding the scope of the license.

If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.

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What to Include in a Licensing Agreement: The Licensor’s Perspective

If you are the owner of intellectual property (IP), it is imperative that you protect your rights by properly registering it and using a licensing agreement that safeguards your rights. For more general information, please read our blog titled “Understanding Licensing Agreements.”

When creating a licensing agreement, you first need to determine the scope of the license. You will want to keep ultimate ownership of the IP, but you can assign limited use rights. The license scope should be broad enough that others will want to use your IP. Generally speaking, unless the IP is custom-made, the license is usually nonexclusive, so you can sell or license the use of it to other parties.

In most circumstances, you will want to make it clear that the license does not allow the licensee to reproduce or pirate the IP in order to sell it to third-parties. However, if you allow the licensee to reproduce the IP, you will want to be paid royalties or ongoing maintenance charges in exchange for the resale license.

Other topics your license agreement should cover include:

  • How long the license will last
  • Outline any rights of the licensee to modify or combine the IP with other products
  • Set forth any prohibited uses of the IP
  • Establish whether there are rights to transfer or sublicense
  • Detail the warranties; Disclaimer of the UCC warranties
  • List the limitations on the licensor’s liability
  • Include a provision covering nondisclosure of protected information
  • Outline indemnity for infringement
  • Set forth available remedies
  • Establish the conditions for terminating the contract

There a numerous factors that must be considered and negotiated when creating a license agreement. The laws governing intellectual property can be complicated, so having a seasoned attorney assist you is invaluable. Contact Leslie S. Marell today to schedule your appointment.

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Understanding Licensing Agreements: From the IP Owner’s Perspective

Understanding what constitutes “intellectual property” (IP) and the importance of protecting it is important to any business owner. IP is anything that is created in an individual’s mind, including art, music, computer software, inventions, designs and trademarks. You can protect IP with a license, which is a type of contract that allows you to maintain control over your IP but transfers certain rights to a third party to use the IP.

The holder of the IP rights is called the “licensor.” The party that wishes to use the IP is called the “licensee.” By entering into a license agreement, the licensee pays money to the licensor for the right to use the invention or creative work. In many software license situations, the licensee is granted a non-exclusive right to use the IP. In other situations where the licensee has been involved in some development of the IP, the licensee may expect either ownership rights or exclusive rights to use the IP.

The primary way to protect your IP is to register for all rights that apply to your circumstance, such as:

  • Patents – inventions
  • Copyrights – original works of authorship
  • Trademarks – symbols, words, names or other designations used to identify goods made or sold in order to distinguish them from other similar goods

Intellectual property law can be complex, so it is important to confer with a knowledgeable attorney on how to protect and manage your IP rights. Once you have secured your rights to the IP, you can create your licensing contract.

A license agreement does not have to be lengthy and complicated, but it must be uniquely tailored to meet your individual needs. You want to ensure the contract is clear and concise, but most importantly, enforceable. Federal law imposes strict civil and criminal penalties for unauthorized use of IP. Your license agreement should provide you with the ability to file a lawsuit to enforce your rights and recover certain remedies such as an injunction and monetary damages if the licensee misuses the IP. You may also be entitled to recover actual damages, which may include any money you lost as a result of the infringement. In certain cases, you may even be able to recover any profits wrongfully gained by the infringing party.

To learn more about license agreements or how we can assist you with other business-related matters, contact Leslie S. Marell today. For more information, please read our next blog titled “What to Include in a Licensing Agreement.”