IP Insights: Dos and Don'ts of Licensing Agreements (2021)

My colleague Pascal and I will discuss the “Dos and Don’ts” of IP licensing agreements and talk about common mistakes and helpful tips.

Let’s start with a “don’t”, although we are typically very positive. The first “don’t’” would be: Don’t always use templates. When you have a license agreement to be drafted, you have so many different goals to be taken into account, so a normal template will not fit your purposes. What we usually advise is to clarify your own goals, draft them, put them into an agreement, and then, afterwards, you may double-check against a template or a checklist whether everything you need really is in the agreement.

The parties need to clarify well in advance which goals they are pursuing. What sounds simple is often neglected. From our experience, it is worth-while investing time at the outset to answer the following questions:
What exactly do I want to license in or out? For example, only patents, or also related know-how? What about future developments and improvements? Also, you must think about the territorial, temporal, and personal scope of the license? And also, don’t neglect mid- and long-term goals: Is it only profits I want to make with that agreement? Or is it more? Maybe a dispute resolution? Maybe, I create the basis for further cooperation like R & D. And what market-position am I aiming at?

You are mentioning that so many different goals come into this. And our experience is that’s also one of the reasons why you should not only discuss a licensing agreement with the legal team. Internally, you should have as many relevant people involved as you can. So, not only the legal team, but also marketing, production, finance, and the R & D team who has maybe drafted the patent you’re licensing. And, of course, as high-level in the structure as you can, so senior people, senior management, have them involved, to set up your internal strategy before going to your partner. And we think it also helps very much if you have something like an internal position paper, so you know your goals, you know your strategy before you actually get to your partner you want to enter into relationship with.

Such an internal paper is of utmost value, especially in very long and intense negotiations, where the other side comes up with last-minute changes.

What would you suggest? How do we avoid long and intense negotiations?

I would say, it is decisive that each party clearly says what it wants. “Hiding” your core interests does not help the negotiations. This might lead to long, costly, and – in the end – frustrating meetings with the other side. To the contrary, if both parties enter into an open conversation and jointly work towards a win-win solution, the best results will come up.
What our very experienced partner Peter Chrocziel said in this context is, do not think in terms of opposites. To underline this point, he also brought the example of a marriage. Like in marriage there is not a winning party and a losing party in licensing negotiations. Either the deal works for both parties, or it will not be successful.

We, both coming from a litigation perspective, tend to neglect that – that in a licensing relationship, you need to work together, and you need to be on the same page. And, it’s also good to write that down in a letter of intent and a memorandum of understanding. And, you should also take into account, sometimes, you don’t really know what they have. Whether the rights to be licensed are really as strong as you hope. So, do a proper due diligence, before actually signing the agreement.

Exactly. And, doing all that, you must not forget to think about very clear and precise wording. So, what we often suggest is: Double-check your text with the following test question: How would judges understand the clause if they read it years later without all that insider knowledge you and the other side have?

Yes, the judges not being involved in the discussions, not having spoken to all people. And I would agree, but sometimes, in my opinion, not only think in the mindset of a judge, but also a non-legal trained person. Like something from the R & D department – how would they understand the clause, is that really what they wanted to have in the agreement? So, Anna, these were just a few tips we wanted to give. Of course, there is a lot more to take into account when drafting an agreement. Wouldn’t you say that?

Absolutely. So, everybody who is interested in more information, please get in touch with Pascal or myself. Or have a look at our IP brochure called “IP licensing agreements”. This brochure also contains a checklist about helpful content. Thank you very much for watching.