Parties should consider several subjects when entering into a license agreement:
• What is being licensed—patents, trademarks, copyrights, trade secrets, know-how
• Exclusivity, right to sublicense
• Duration of license
• Field of use
• Territorial limitations
• Consideration: upfront fee, running royalties, minimum payments
• For royalties based on sales, what kind of records is the licensee required to keep? What audit rights does the licensor have?
• How often must the licensee make reports to the licensor?
• Who owns improvements made by the licensee to the licensed product?
• Who will be in control, and who will bear the cost, of any pending patent applications?
• Which party has the obligation of bringing infringement actions against third parties?
• Under what conditions can the parties terminate the agreement?
• Requirements for the licensee to place patent marking on licensed product
• “Most favored licensee” provision, in which the licensee gets the benefit of any more favorable terms negotiated by another licensee
• Warranties and representations
• Alternative dispute resolution: mediation, arbitration
• Are the terms of the license to be kept confidential?
• Which state’s law will govern disputes over the license?
• To whom should notices concerning the license be sent?
• Integration: are all previous oral and written agreements voided by execution of the license?
• Force Majeure: what happens in the event of breach of the license because of circumstances beyond the control of the parties, e.g., flood, war, etc.?
This list is by no means intended to be comprehensive but it should give an idea of the breadth of issues posed by a potential patent license.