GNL 9: Licensing Patents – Royalties, Warranties & Indemnities and Termination

Licensing intellectual property enables a third party to practise the technology covered by it, typically in return for a royalty stream. In general, the intellectual property owner will only be able to negotiate such a deal if the intellectual property is of particular use to a commercial licensee, or alternatively in the case of patents prevents a potential licensee from engaging in a business without taking a licence. Such a situation may well arise after a successful collaboration between a life sciences company and its prospective licensee. Granting a licence in respect of a particular field of use is a particularly attractive way to license technology, since it enables the company to realise a royalty stream from its technology in a field which is perhaps not its key target market or in which it is incapable of developing itself while maintaining exclusivity for itself in the non-licensed fields of use.

Intellectual property licences can be extremely complex agreements and it is important that the company does not give too much of its intellectual property estate away. On the other hand, the company may require a licence from a third party in order to maintain a freedom to operate, in which case it must ensure that it does not pay too dearly or frame its access rights too imprecisely.

When negotiating and drafting licences, special care is required in respect of a number of issues.

This Guidance Note discusses royalties, warranties and indemnities, and termination.

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