Fundamentals in Software Licensing (J. Haislmaier - IP Institute 2010)

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Fundamentals of Software Licensing. Presented by Jason Haislmaier at the 2010 Rocky Mountain IP Institute CLE Conference.

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Fundamentals in Software Licensing (J. Haislmaier - IP Institute 2010)

  1. 1. Fundamentals of Software Licensing June 3, 2010 Jason D. Haislmaier jason.haislmaier@hro.com www.hro.com Denver Boulder Colorado Springs Dublin London Los Angeles Munich Phoenix Salt Lake City San Francisco This presentation is intended for general informational purposes only and should not be construed as legal advice or legal opinion on any specific facts or circumstances, nor is it intended to address specific legal compliance issues that may arise in particular circumstances. Please consult counsel concerning your own situation and any specific legal questions you may have. The thoughts and opinions expressed in this presentation are those of the individual presenters and do not necessarily reflect the official or unofficial thoughts or opinions of their employers. For further information regarding this presentation, please contact the presenter(s) listed in the presentation. Unless otherwise noted, all original content in this presentation is licensed under the Creative Commons Attribution-Share Alike 3.0 United States License available at: http://creativecommons.org/licenses/by-sa/3.0/us. Copyright 2009 Holme Roberts & Owen LLP Licensing Ownership Sharing Copyright 2009 Holme Roberts & Owen LLP 1
  2. 2. Copyright 2009 Holme Roberts & Owen LLP license, n. A permission to take some action that would otherwise be permission to take some action that would otherwise be unlawful; An agreement under which is lawful for the unlawful; An agreement under which ititis lawful for the What is a license? licensee to use the licensor’s property to do some act that would otherwise be illegal. “[A] license is an authority to do a particular act, or series of acts, upon another’s property, without possessing any ownership in that property.” Copyright 2009 Holme Roberts & Owen LLP Ownership License Nothing Copyright 2009 Holme Roberts & Owen LLP 2
  3. 3. Rights Owned License Grant Term and Termination Ownership Consideration Reps and Warranties Indemnification Limitations on Liability Additional Provisions Rights Conveyed Copyright 2009 Holme Roberts & Owen LLP Know the available “tools” Understand when to use them Copyright 2009 Holme Roberts & Owen LLP License Grant Copyright 2009 Holme Roberts & Owen LLP 3
  4. 4. Licensee is granted only the rights stated in the license If it is not stated in the license, it is not granted Copyright 2009 Holme Roberts & Owen LLP Grant Clause General Background • Identify the software or technology being conveyed – Definition of software or technology – Form of software or technology – Applicable IP rights – Rights to any related IP, software, or technologies – Rights to updates or follow-on inventions • Define the rights granted – Duration – Exclusivity – Field of use – Territory – Duration and renewal – Termination – Sublicensing – Transferability Copyright 2009 Holme Roberts & Owen LLP Grant Clause Sample Provision Copyright 2009 Holme Roberts & Owen LLP 4
  5. 5. Grant Clause Restrictions on Scope • Do not overlook restrictions on the grant • Contradictory restrictions limit the rights granted • Beware of: – Unintended limitations on the grants of rights – Reliance on implied grants of rights – General terms (or jargon) without additional explanation and definition Copyright 2009 Holme Roberts & Owen LLP Grant Clause Sample Provision Copyright 2009 Holme Roberts & Owen LLP Term and Termination Copyright 2009 Holme Roberts & Owen LLP 5
  6. 6. Term and Termination Term • Agreements last only for the term specified • Following the specified term, agreement expires or renews • Perpetual vs. Irrevocable – Perpetual • Subject to revocation or termination • Breach typically creates potential loss of license – Irrevocable • Cannot be revoked • Breaches address through remedies other than termination (e.g., injunctions or damages) • Contingencies on the term • Term of the grant and underlying IP rights • Term of agreement and term of the grant Copyright 2009 Holme Roberts & Owen LLP Term and Termination Renewal • How many renewals and for how long? • Triggers for renewal – Automatic unless notice given – Mutual or unilateral agreement – Contingent on action • Deadlines for renewal • Notice obligations • Will any provisions change upon renewal? – Royalty payments – Termination right Copyright 2009 Holme Roberts & Owen LLP Term and Termination Termination • Know how the agreement (and grants) can be terminated • When can you allow a termination (and when will you want one) – Material breach – Failure to meet milestone or performance criteria – Bankruptcy – Commission of a felony (SEC violations?) – Cease use of licensed materials – Assignment and change in control • Clarify notice requirements • Additional considerations – Will both parties have the same termination rights? – Will there be any post-termination rights or obligations? Copyright 2009 Holme Roberts & Owen LLP 6
  7. 7. Term and Termination Effect of Termination • What rights will you need post-termination and for how long? – Access to licensed software or technology – Transition assistance – Copies of data or information – Destruction of confidential information – Use of logos and marketing materials – Payment and accounting • Even if there is a price, negotiate the right into the contract • Carefully review the list of surviving provisions Copyright 2009 Holme Roberts & Owen LLP Ownership Copyright 2009 Holme Roberts & Owen LLP Ownership Initial Ownership • Focus on ownership begins well before the focus on the license • IP ownership under applicable law can be uncertain and complex (and even contradictory) • Do not rely on the law to grant you ownership • Obtain it with employee and contractor invention assignment agreements – All inventions created in the course of employment irrevocably assigned to the company – Often coupled with confidentiality requirements Copyright 2009 Holme Roberts & Owen LLP 7
  8. 8. Ownership Ownership in the License • Expressly address ownership in the license agreement • Boundless ways to “slice-and-dice” ownership rights within the license • Typically – Licensor maintains ownership of the licensed technology and IP – Licensee expressly assigns any rights it obtains in the licensed technology and IP back to the licensor Copyright 2009 Holme Roberts & Owen LLP Ownership Ownership of Developments • If there is a chance that modifications will/may be made, address ownership of the resulting developments • Often addressed even if “modification” is expressly prohibited • Basic options – Licensor owns – Licensee owns – Mixed ownership – Joint ownership • Additional considerations – Grant back of rights – Covenant not to enforce – Limitations on right of the owner Copyright 2009 Holme Roberts & Owen LLP Consideration Copyright 2009 Holme Roberts & Owen LLP 8
  9. 9. How will you get paid? How much will you pay? Copyright 2009 Holme Roberts & Owen LLP Consideration Fees and Payment • Fees can be up-front or periodic • Other payments can include – Milestone payments – Payments based on performance metrics • Balance against other financial considerations (e.g., royalties) • Any portion subject to recoupment? Copyright 2009 Holme Roberts & Owen LLP Consideration Expenses • Typically for actions performed (or to be performed) by the other party – Consulting – Additional R&D – IP procurement or maintenance – Regulatory approvals – Other justified and reasonable expenses • Balance against other payments Copyright 2009 Holme Roberts & Owen LLP 9
  10. 10. Consideration Royalties • Periodic payments • Calculated as a rate • Based on a percentage of (net) sales, revenue, units produced, etc. • Beware of references to “standard” provisions – Rates – Definitions of “net” Copyright 2009 Holme Roberts & Owen LLP Consideration Royalties • Rate itself has various aspects – Amount – Gross or “net” – Fixed or variable – Maximums and minimums – Different rate for sublicensing? • Dependent on various factors – Exclusivity – Breadth and strength of rights – Length of rights remaining – Importance of technology – Nature of the applicable market Copyright 2009 Holme Roberts & Owen LLP Consideration Equity • Ownership position in the company • Often in lieu of other forms of consideration or to allow licensor to benefit from successful commercialization • Can take form of actual grant of equity or warrants to obtain equity at a future date • Many considerations in negotiating grants of equity Copyright 2009 Holme Roberts & Owen LLP 10
  11. 11. Representations and Warranties Copyright 2009 Holme Roberts & Owen LLP “Vendor represents, warrants and covenants to Company. . .” Copyright 2009 Holme Roberts & Owen LLP representation, n. A present statement of fact – either by words or by conduct – made to induce someone to enter into a contract < the buyer relied on the seller’s representation that the roof did not leak>. warranty, n. An express or implied promise that something in furtherance of the contract is guaranteed by one of the contracting parties; a seller’s promise that the thing being sold is as represented or promised. covenant, n. A formal agreement or promise, obligating a party to do some act. Copyright 2009 Holme Roberts & Owen LLP 11
  12. 12. Representations and Warranties Warranties vs. Representations Warranties Representations • Warranties are an • Representations are “essential” part of a typically an inducement contract to enter the contract • Warranties are • Typically, must show conclusively presumed that representations are to be material to the material to the contract contract • Substantial compliance • Warranties merit strict for a representation compliance Copyright 2009 Holme Roberts & Owen LLP Representations and Warranties Express vs. Implied Warranties • Express warranties – Written into the contract – Can take many forms • Implied warranties – Implied by law into a contract (UCC Article 2) • Merchantability • Fitness for a particular purpose • Title and noninfringement – Included unless expressly disclaimed • Implied warranties are no substitute for express warranties – Title/right to license – Development and delivery – Performance (of software and services) – Third party code – IP infringement Copyright 2009 Holme Roberts & Owen LLP Representations and Warranties Disclaimers • Disclaimers are generally effective against implied warranties • Can help to show intent as to express warranties • Specific legal requirements for disclaiming implied warranties • Disclaimers often used with limitations of remedies Copyright 2009 Holme Roberts & Owen LLP 12
  13. 13. Representations and Warranties Limitations of Remedies • Contracting parties may limit liability by limiting available remedies • Generally enforced unless the limited remedy “fails of its essential purpose” – Circumstances existing at the time of the contract have changed – Enforcement of the remedy would leave one party with no actual remedy • Often used by vendors to limit remedies – repair, replacement, re-performance or refund • Can also be used by companies to limit liability – Failure to pay – Failure to purchase sufficient licenses – Early termination • Limited remedies should be viewed separately from other broader limitations of liability Copyright 2009 Holme Roberts & Owen LLP Indemnification Copyright 2009 Holme Roberts & Owen LLP “Vendor agrees to indemnify, defend and hold harmless Company from and against. . .” Copyright 2009 Holme Roberts & Owen LLP 13
  14. 14. indemnification, n. A duty to make good any loss, damage, or liability incurred by another. The right to claim reimbursement for loss, damage, or liability from a person who has such a duty. hold harmless, vb. To absolve (another party) from any responsibility for damage or other liability arising from the transaction. defend, vb. To represent (someone) as an attorney to deny, contest, or oppose (an allegation or claim). Copyright 2009 Holme Roberts & Owen LLP Indemnification General Information • Traditional areas for indemnification – Personal injury and property damage – Breach of warranties – Negligence and willful misconduct – Infringement of IP rights – Breach of applicable law • Increasingly common – Open source software – Security failures – Breaches of confidentiality provisions – Breaches of privacy provisions • Consider in combination with limitation on liability Copyright 2009 Holme Roberts & Owen LLP Indemnification Sample Provision Copyright 2009 Holme Roberts & Owen LLP 14
  15. 15. Limitations on Liability Copyright 2009 Holme Roberts & Owen LLP Copyright 2009 Holme Roberts & Owen LLP direct damages, n. Damages following from the type of wrong that is complained of; compensatory damages for harm that is reasonably expected. special damages, n. Damages alleged to have been sustained in the circumstances of a particular wrong; must be specifically claimed and proved. consequential damages, n. Losses that do not flow directly and immediately from a wrong but that result indirectly from the wrong. punitive damages, n. Damages awarded when the defendant acted with recklessness or malice; intended to punish; generally not recoverable for breach of contract. Copyright 2009 Holme Roberts & Owen LLP 15
  16. 16. Limitations on Liability General Information • Liability limitation clauses are generally enforced – Even if an exclusive remedy fails – Can create an issue if they are truly “unconscionable” • Limitation of commercial losses in a commercial contract – ok • Limitation of losses for personal injury or death in a commercial contract – not ok • Use as a “safety net” beneath disclaimer of warranties and limitation of remedies – Limit actual damages to no more than the value of the contract – Eliminate incidental or consequential damages • Include exceptions to address areas of heightened concern with vendors – Traditional exceptions: indemnification, confidentiality, violations of IP rights – Increasingly common: security and privacy Copyright 2009 Holme Roberts & Owen LLP Additional Provisions Copyright 2009 Holme Roberts & Owen LLP Additional Provisions “Boilerplate” Can Be Important • Assignment • Choice of law • Choice of venue • Force majeure • Maintenance and support • Export control • Insurance • Waiver and modification • Confidentiality • Escrow Copyright 2009 Holme Roberts & Owen LLP 16
  17. 17. Closing Thoughts Copyright 2009 Holme Roberts & Owen LLP Closing Thoughts Consistency is Key • Develop a strategy for each license (no matter how rudimentary) • Develop checklists to aid in review of agreements • Develop form agreements and provisions • Understand what (really) matters to the business in the deal • Establish conceptual agreement before drafting anything (or paying someone to draft anything) • Keep things simple • Retain experienced counsel (not just experience with IP, but experience with software and technology transactions) Copyright 2009 Holme Roberts & Owen LLP Thank you. Jason Haislmaier jason.haislmaier@hro.com @haislmaier www.hro.com Denver Boulder Colorado Springs Dublin London Los Angeles Munich Phoenix Salt Lake City San Francisco 17

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