Drafting Licence Agreements Legal Considerations and Good Practice

1. Drafting Licence Agreements Legal Considerations and Good Practice Jeremy Dickerson Partner Burges Salmon LLP

2. Scope of the Talk • Issues • Key issues • Secondary issues • Case Studies • Umbro • Apple • WWF • Christian Dior • Scandecor • Drafting • Example clauses

3. Key Issues • Exclusive, Non-Exclusive or Sole Licence • Scope of goods and/or services • Territory • Duration of agreement • Royalties and payment terms • Quality control • Ownership of goodwill • Future proofing against: • Change of technology • Change of territory

4. Secondary Issues • Warranties / indemnities • Responsibility for third party infringement • Assignment / sub-licensing • Maintenance of the trade mark • Termination / effects of termination • Confidentiality • Dispute resolution (Courts or ADR) • Governing law / jurisdiction

5. Case Studies/Horror Stories

6. Scope of Goods and ServicesCase Study - Umbro • Issue: • Umbro entered into two separate licences for the sale of football related clothing; one with Dick’s for “on-field” wear, and another with Hudson Bay for “off-field” wear. • Hudson Bay claimed that Umbro had wrongly allowed Dick’s to market off-field wear. Umbro counter-claimed in relation to the sale of on-field wear by Hudson Bay. • Outcome: • Both the Claim and Counterclaim were successful.

7. Future ProofingCase Study - Apple • Issue: • Apple Corps accused Apple Computer of breaking a 1991 agreement in its use of the Apple logo on music-related services such as the iTunes music store. • Outcome: • Apple Computer were not in breach of the agreement and could continue to use the Apple logo on its iTunes music store • "I think that the use of the apple logo is a fair and reasonable use of the mark in connection with the service, which does not go further and unfairly or unreasonably suggest an additional association with the creative works themselves" (Mr Justice Mann).

8. Future ProofingCase Study - WWF • Issue: • Wildlife charity registered initials WWF as a trademark in 1961. • Compromise agreement in 1994 relating to the limitations of Federation’s use of WWF. • Federation agreed & complied with terms until it registered the domain www.wwf.com in 1997. • Outcome: • Held that the Federation had to comply with the agreement. • Federation changed its name to WWE. • Domain name transferred to WWF. • “WWE provides us with a global identity that is distinct and unencumbered, which is critical to our U.S and international growth plans” (Linda McMahon, CEO).

9. Quality ControlCase Study – Christian Dior • Issue: • A licensee of Dior was in financial difficulties and sold its Christian Dior branded lingerie to a discount store, contrary to the terms of its trade mark licence. • Dior brought an action for trade mark infringement. • Outcome: • Dior could invoke its trade mark rights where the licence had been breached in a way which damaged the allure and prestigious image of its luxury goods.

10. Ownership of Goodwill Case Study - Scandecor • Issue: • The Scandecor business was divided geographically in 1979 and a new Swedish company was formed. • The original business retained ownership of the SCANDECOR trade marks and licensed them to the Swedish company. • No provision was made for goodwill in the licence. • Outcome: • The commercial reality in the marketplace was that goodwill attached to the Swedish company. The licence of the trade marks did not affect this. • The trade marks were not distinctive of the original company in the UK, and were revoked as misleading.

11. Example Clauses & Points to Consider

12. Exclusive, Non-exclusive or Sole? • Exclusive Licence • to the exclusion of all others • Non-exclusive Licence • allows the licensor to grant the same rights to others • Sole Licence • Allows the licensor and licensee to use the same rights, but the licensor can’t grant rights to any others

13. Scope of Goods and Services • Careful consideration required for scope of goods and services • Need to future proof - consider provision for modification of goods by agreement, or make provision for technology changes: e.g. “… or any other technological advances in this area…” or “… or any other similar technology not yet invented.”

14. Territory • Often in definitions • Consider, for example, EU extensions: “means the [United Kingdom of Great Britain and Northern Ireland, the Channel Islands, isle of Man and the Republic of Ireland] and [any European country] and [any country which has acceded to the European Union after this Agreement has been signed].” • List each country in a schedule for certainty rather than referring to, say, “Europe” or “China” • Unsolicited requests from outside the Territory • Online issues – which domain names can the Licensee use?

15. Royalties and Payment Terms • Must include: • Payment procedure • Timetable for payments • Provision for late payments e.g. interest • Reporting obligations and provision for audits • Consider: • Payment of an advance • Currency fluctuations – fix relevant currency and procedure • Minimum royalty: • increase with RPI • conversion to non-exclusive licence if not met

16. Quality Control • Quality of product AND Application of the mark • Provision for relevant quality standards, e.g. Toys (Safety) Regulations 1995 • Provision for samples and inspection: E.g. “Samples of each of the Licensed Products shall be sent to the Licensor for approval. The Licensor shall have the right to reject the samples if they do not meet the Licensor’s approved quality standards and/or if they have not been manufactured in accordance with the terms of this Agreement. The Licensor shall notify the Licensee of such changes as are necessary and the Licensee shall submit amended samples to the Licensor for approval. The parties shall continue to make further changes until both parties approve final samples of each Licensed Product.” “The Licensee shall manufacture the Licensed Product to at least the same standard as the approved samples.”

17. Ownership of goodwill • E.g. “The Licensee agrees that any goodwill or common law rights in the Trade Marks which may become vested in the Licensee by reason of its use of the Trade Marks shall accrue to the Licensor and the Licensee hereby assigns any such goodwill and common law rights to the Licensor. The Licensee shall at the request of the Licensor (before or after termination of this Agreement) execute any further assignment thereof that the Licensor shall require together with all rights of action then accrued, without payment.”

18. Warranties/Indemnities • E.g. Product Liability: “The Licensee shall at all times (notwithstanding the termination of this Agreement) be liable for, indemnify and hold harmless the Licensor (together with its officers, servants, contractors and agents) against any and all liability, loss, damages, costs, legal costs, professional and other expenses of any nature whatsoever incurred or suffered by the Licensor (and/or its officers, servants, contractors and agents) resulting from any and all product liability claims arising out of the manufacture, distribution, promotion, sale and use of and other dealings with the Licensed Products.” • Insurance: “The Licensee shall keep in force, at all times, insurance with an insurance company approved by the Licensor, against legal liability including product liability to pay damages and claimants' costs and expenses in respect of third party personal injury and loss arising in connection with the performance by the Licensor of its obligations hereunder. Such insurance shall have a minimum cover of £5 million in respect of each and every occurrence or series of connected occurrences. The Licensee shall, as and when reasonably required by the Licensor, produce documentary evidence that the said insurances are properly maintained.”

19. Third Party Infringement • E.g. “Each party shall promptly notify the other of any actual or suspected infringement of the Trade Marks or the Licensed Products within the Territory that comes to its attention ("Infringement").” “The Licensee shall co-operate fully with the Licensor at the Licensor’s expense in taking all steps required by the Licensor, in its sole discretion, in connection with any Infringement of the Trade Marks or the Intellectual Property in any Licensed Products which is owned by the Licensor. The Licensor shall be responsible for the cost of any legal proceedings it requires and is entitled to any damages, account of profits and/or awards of costs recovered. The Licensee shall use its best endeavours to assist the Licensor in any legal proceedings relating to such Infringement.”

20. Assignment / Sub-Licensing • E.g. “None of the Parties shall assign or subcontract the whole or any part of this Agreement without the prior written consent of the other Party.”

21. Termination • Consider provisions for: • Breach • Repeated minor breaches • Challenge to validity (not revocation on grounds of non-use) • Insolvency • Change of control • On written notice to the other party • Provide clear notice provisions

22. Effects of Termination • Termination triggers: • Immediate termination of licence subject to any sell off period allowed • Right of sell off • Only goods conforming with quality standards • Provision for payment of related royalties • Payment of sums (including interest) due • Return of confidential information • Co-operation in cancelling recordal of licence

23. Confidentiality • E.g. “This Agreement and its subject matter shall remain confidential between the parties and the provisions of this clause shall survive any termination of this Agreement. Neither party shall without the other's prior written consent use any confidential information in any medium whatsoever (including but not limited to documents, disks, information stored electronically or transmitted orally) relating to the other's business or affairs (save as is necessary to enable it to perform this Agreement), or disclose it to any third party except to the disclosing party's own professional representatives or advisers on a confidential basis or as required by law.”

24. Dispute Resolution • Internal escalation procedure • ADR Clause e.g. “The parties shall attempt in good faith to resolve any dispute arising out of or in connection with this agreement promptly by negotiation between executives who have authority to settle the dispute and who are at a higher level of management than the person with direct responsibility for the administration of this agreement. Either party may commence a negotiation by giving the other party written notice of any dispute not resolved in the normal course of business (the Dispute Notice).” “Where a claim or dispute arising out of or in connection with this agreement is not settled by negotiation, the parties will consider using alternative dispute resolution (ADR) techniques before resorting to litigation.”

25. Governing Law and Jurisdiction • Exclusive jurisdiction or non-exclusive jurisdiction? • E.g. “This Agreement and all matters (including, without limitation, any contractual or non-contractual obligation) arising out of or in connection with it, its subject matter or formation shall be governed by and construed in accordance with English law.” “The parties irrevocably submit to the [exclusive] [non-exclusive] jurisdiction of the English courts to settle any dispute or claim arising out of or in connection with this Agreement or its subject matter or formation (including non-contractual disputes or claims) except that a party may seek an interim injunction or urgent relief in any court of competent jurisdiction.”

26. Other Issues • Responsibility for costs • Recordal of Licence • Good practice • Beneficial to licensees • s.25(3) and (4) Trade Marks Act 1994 • Competition Issues

27. This presentation gives general information only and is not intended to be an exhaustive statement of the law. Although we have taken care over the information, you should not rely on it as legal advice. We do not accept any liability to anyone who does rely on its content.