At Miletti Law®, the Authoritative Force in Employment and Labor Law, we work relentlessly to keep you, our Unusually Motivated® readers, #InTheKnow about legal issues that affect you or your business. Because we are a firm of our word, here is yet another blog, specially prepared for you in a manner that only Miletti Law® can. Picking up from the previous blog, we continue to power through this fresh topic of intellectual property rights.

In part 1 of this series, we covered several aspects of intellectual property, including the definition and types. In part 2 of the series, we’re going to further develop the discussion on intellectual property rights that were introduced in part 1.

By way of backdrop, we touched briefly on licenses. We mentioned that under the law, there is a right to ownership created when there are established intellectual property rights. This means that the owner of the intellectual property now has a legal right and ownership of this once abstract concept, and out of an abstract concept comes a very real ownership as that abstract concept has now developed secondary meaning. That intellectual property can be transferred to others via license subject to certain terms and conditions, and hence, an owner of intellectual property may permit the grant of such license to use the intellectual property, so long as the specific terms and conditions of the specific grant are maintained.

The Term of a License Grant

Under intellectual property law, a term or duration of the license, preferably in years, should be clearly specified in the grant of a license. For instance, while a license can have a duration of 20 years, it might also have no duration. Still, some licenses permit a licensee the perpetual use of an intellectual property. It would depend on how long the grantor (licensor) wants to permit the other party to use this or her intellectual property. However, while it shouldn’t be treated disdainfully, the decision as to whether a license should have a term and, henceforth, a duration, is critical. It is often perceived that allowing a license to run without a finite term or “in perpetuity” and making a license’s grant “irrevocable,” or, as it is in some jurisdictions, impervious to revocation even when a material breach is committed by the licensee, may end up being giving up too much. Unfortunately, in a business context, setting a commercially sensible price for both a licensee and licensor is often one of the most challenging decisions, although the use of most intellectual properties doesn’t last to “perpetuity.”

How a License is made Irrevocable

We’ve mentioned that licenses are regarded as impervious to revocation in some jurisdictions. As a preliminary matter, a license agreement is also required to specify the territory/jurisdiction within which it is applicable. However, what should a licensor do in the case of material breach of contract on the part of the licensee? For instance, a licensee might decide to sublicense the license against the terms and conditions of the original license agreement. Ultimately, this amounts to material breach of contract, which, under normal circumstances, would require a discharge of obligations on the non-breaching party and recovery of damages on the breaching party. Unfortunately, contract agreements include the term “irrevocable,” which implies that even when material breach of contract occurs, termination of a license is not permissible. As a consequence of the implication of the term “irrevocable,” a licensor is barred from seeking the recovery of damages following the breach.

This is a lot of complicated language… so let’s turn this into common English.

“Licensor” – Someone who grants a “license” to a “Licensee”

“Licensee” – Someone who is granted a license to market, or otherwise “use” the Licensors (i.e. owner of the intellectual property) intellectual property.

“Perpetuity” – Forever.

“Grant” – Permission.

“Revocable” – Can be reversed and taken back. Think, “you can change your mind to grant a license”

“Irrevocable” – Can’t be reversed or taken back. Think, “set in stone, and you can’t do anything about it.”

“Breach” – someone violated something.

“Breach of Contract” – When someone promises you a “license” to use stuff, they write it down on paper. That paper is a contract. When you “breach your contract,” you “violate that paper”

“Material Breach” – You violated that contract in a way where there is no return. You will NOT be able to cure (“cure” means “repair”).

Sometimes this legal language can be confusing for lay people—but here at Miletti Law®, that’s what we do—we make the complicated simple, and turn you all into legal experts. 😊 How can we expect you to be Usually Motivated® if you don’t even know what you are motivated for?? Then again—that’s why we are “Usually Motivated®”—no one knows what the heck we are actually motivated for!! 😊

Okay, back to it.

The Correct Language to use in a Pro-License Agreement

Now that terms such as “irrevocable” could end-up protecting the breaching party against action or reparations in money damages, what language should be used in a license agreement? As the authoritative force, we recommend that a licensee should ensure that (1) the license should never be “irrevocable,” as you need control over your intellectual property, and (2) the agreement should specify that any license granted is always subject to “termination” or “revocation,” if the terms and conditions of use are materially breached by the licensee.

Ownership of Intellectual Property in the Underlying Deliverables & Work Product

From a commercial perspective, the use and ownership of proprietary rights are always contentious and daunting issues when it comes to intellectual property. This underscores the need for both parties, especially the licensor, to ascertain that the term or duration of the license and the obligations and rights of the licensee are precisely, adequately, and exhaustively specified. However, this does not mean that problems will not arise in the future. Let’s consider the following scenario.

We will begin by walking you though a “work for hire” situation.

An e-commerce firm, hereafter referred to as the client, seeks to have a mobile application, hereafter called the work product, through which it can provide its customers with services more efficiently. It, therefore, seeks the services of an individual or entity, hereafter referred to as the contractor” to create this work product. Under normal circumstances, the client would generally assert sole entitlement to customize the application created on its behalf, in addition with their assistance and input, simply because they paid the contractor for the services during its creation. There is no doubt that the contractor is the sole provider and “owner” of the technical knowhow, technology, and development science behind this work product. However, it is common for the client to assert entitlement of this work product and all its aspect and features, including the physical code (source and object) and the concepts embodied in that code. Before and after the creation of the mobile app, the client would want the contractor to sign that the latter has agreed to assign the former all interests, titles, and rights to all, including both the intangible contents and tangible expression, conceivable intellectual property rights associated with the work product.

After all, intellectual property is all about taking this intangible thought, and turning it into something tangible and giving it life! However, it makes sense that a contractor would not accept to sign such a contract simply because it is their creating and they want control over it. This is because, assuming that this application was purely their own, they would, ultimately, lose the right to use any app development-related techniques and ideas they had before making this application for the current client.

Stay tuned for the next blog where we will go into detail on how to remedy and handle this situation. In the interim, if there are any questions or comments, please let us know at the Contact Us page!