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International Intellectual Property Licensing: Basic Introduction & Checklist

A. General – Overview & Introduction to Intellectual Property Licensing Across International Borders

1. Next Step to Expand International Operations? Licensing of patent rights, trade secrets, know how, copyrighted software or other technology, and trademark rights (collectively referred to hereafter as “Technology”) to overseas party for exploitation (manufacture, use and sale) abroad is often a next step (after exporting) to expand international operations – whether by companies around the world into the U.S. market, or by U.S. companies abroad.

2. License defined: A conveyance of a right under a patent, trademark or copyright which confers less than the grantor’s entire bundle of rights is a license rather than a sale or assignment. A license may grant rights to use, manufacture and sell. The licensee does not acquire legal title to the intellectual property, only a temporary right to use it, and only to the extent provided in the License Agreement. A purchaser/ assignee of the rights takes subject to all prior outstanding licenses (unless license is terminated pursuant to terms of license agreement or by negotiation prior to sale).

3. Some Advantages:

a. A relatively inexpensive and quick way to tap foreign markets: Can license to others the right to manufacture and sell your products abroad without the need to make a large direct equity investment abroad
b. Fewer financial and legal risks than owning and operating a foreign manufacturing facility or participating in an overseas joint venture
c. Licensing the Technology to enable a local company to manufacture and sell in that market (in exchange for a royalty) may be way to get around foreign import restrictions on products which could make export to those countries too costly or impractical .
d. Potentially an inexpensive way to test market abroad
e. Potentially a way to obtain help in funding R & D and to acquire foreign technology (through cross-licensing agreements or grant-back provisions, granting Licensor rights in the improved technology developed by the Licensee)
f. Franchising = a primary way of expanding and exporting service businesses through licensing of Technology, know-how and processes and procedures of doing business developed by the Franchisor, together with the provision of training, administrative support and advertising, in exchange for royalties from the Franchisees. Note: Franchise arrangements are heavily regulated in the U.S. by the individual states.

4. Some Disadvantages:

a. You may create a potential competitor overseas, who has knowledge of your Technology. Note: A U.S. Licensor can often prevent unauthorized exports to the U.S. by foreign licensees by filing unfair import practices complaints under Section 337 of the Tariff Act of 1930 with the U.S. International Trade Commission and by recording U.S. Trademarks and Copyrights with the U.S. Customs Service.
b. Intellectual Property concerns:
(1) Need to police use of Technology by your foreign licensee in order to preserve your rights, yet may be difficult
(2) Piracy and counterfeiting rampant in certain countries
(3) Enforcement lax in certain countries
c. Quality control concerns: Difficult to assure foreign manufacturing will meet your high quality standards. Can result in damage to your reputation, trademark and goodwill.
d. Usually produces lower profits than exporting and selling the goods you have produced

5. Types of license agreements

a. Exclusive vs. non-exclusive
b. Not assignable, unless agreement specifically so provides
c. Licenses by implication: E.g. license by estoppel implied from acts of licensor in permitting use without objection

6. Important to investigate prospective foreign licensees carefully before entering into agreement

7. Important to consult qualified attorney experienced in international transactions, before you agree to license your Technology abroad. The experienced international attorney will consult with local counsel (with whom he or she may have a working relationship) in the licensee’s country, to become informed of and assure compliance with requirements of the national and state or local laws of that country.

E.g. Some countries require pre-registration and government approval of license agreements, limit or require certain terms in license agreements, regulate and specially tax royalties, or prohibit royalty payments exceeding a certain rate. Note: The E.U., in particular, has issued detailed regulations governing patent and know-how licensing.

Check also E.g. any bi-lateral treaties in effect between the licensor’s country and the prospective Licensee’s country; the foreign country’s product liability laws, exchange controls, antitrust and tax laws, laws affecting or prohibiting re-patriation of royalties and dividends

8. Enforcement; breach; importance of injunctive relief

9. Antitrust concerns. Consult counsel.

10. Tax concerns. Consult counsel.

11. For U.S. Licensors: U.S. Export License required from Department of Commerce? Especially important to check in cases of advanced technology.

B. Basic Checklist of Terms to be Included in a License Agreement (Note: This checklist is not exhaustive. There may be other terms to be included, depending on your particular technology and factual situation. You must consult a competent attorney with experience in intellectual property licensing.)

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Constance R. Barnhart
Attorney At Law, Managing Member
Barnhart Law PLC

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30 years of law practice
at large law firms
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