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Cross-Border Licensing Issues

Cross-Border Licensing Issues



Cross-border licensing transactions involve a complex interplay of national and international laws and many pitfalls for the unwary.

Cross-border licensing transactions involve a complex interplay of national and international laws and many pitfalls for the unwary.



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    Cross-Border Licensing Issues Cross-Border Licensing Issues Presentation Transcript

    • Cross-Border Licensing Issues Global IP Convention, 2013 Bangalore, January 30, 2013Satya S. NarayanOf Counsel, Royse Law Firm, PCPhone: +1650 521 5745Email: snarayan@rroyselaw.comBio: http://rroyselaw.com/satya_narayan.html
    • Going Global – Some Advantages• New markets for goods/ services• Be close to significant customers• Advanced technologies• Human resource – “Talent”• Low cost manufacturing centers• Challenges in existing markets (e.g., intense competition; slow national economy)• Tax advantages• Overseas funding
    • Going Global – Some Paths• Foreign WOS• Joint ventures• Strategic partnerships• Mergers and acquisitions• Direct to foreign consumers
    • Cross-Border Transactional Challenges• Tax consequences• Transfer pricing issues• Foreign governmental approvals and permits• Foreign filing requirements (including for oversight of license royalties)• Compliance with foreign laws (including warranty limitations, consumer protection, FCPA and anti-bribery laws)• Hedging for foreign exchange risks
    • Today’s Focus: Cross-Border Licensing IssuesI. Intellectual Property (IP) Related Due DiligenceII. Protection of IPIII. Some Examples of Weakened License Restrictions & EnforceabilityIV. International IP Dispute ResolutionV. Choice of Law
    • I. IP-Related Due Diligence Due diligence is critical for global transactions, including cross-border licensing transactions Cross-border IP/ technology due diligence questions:  Does the licensor own the IP?  Does the licensee have any strikes against it? Can the licensee be trusted?  What specific intellectual property rights will need to be licensed?  Which licensee affiliates will need the license? What is the location of those licensee affiliates?  In which country is the licensor’s and licensee’s assets predominantly located?  Will any of the IP assets to be licensed infringe a third party’s intellectual property rights in the foreign jurisdiction?
    • II. Protection of Intellectual Property Register your key export-related IP assets (such as patents and trade marks) in licensee markets Tailor intellectual property agreements/ clauses to overcome or work around presumptions under foreign law Require the licensee (including the joint venture company) to agree in writing to:  “no contest” terms  confidentiality obligations  a present assignment and cascading license/ waiver of any rights to your IP which may vest in the licensee by virtue of the transaction, including rights in any derivatives, improvements and modifications made by the licensee to your IP
    • III.Some Examples of Weakened License Restrictions & Enforceability Issues U.S. copyright law and the EU Computer Programs Directive permit reverse engineering of computer programs for achieving interoperability  U.S.: Contractual restrictions on reverse engineering are, however, enforceable. Bowers v. Baystate Technologies  EU: Contractual restriction on reverse engineering unenforceable. Under German law, sublicense agreements are protected even though the license agreement is terminated for any reason Japanese courts have reinstated licenses to distributors notwithstanding a termination that is in accordance with the distribution agreement if significant investment has been made by the distributor Competition/ antitrust laws impact restrictions (including restrictions on distribution and pricing) on distributors in many countries
    • III.Some Examples of Weakened License Restrictions & Enforceability Issues Under U.S. law, unless a licensee elects under Section 365(n) of the U.S. Bankruptcy Code to retain the licensed IP within the prescribed time and continues to pay royalties, the bankrupt licensor or its trustee may reject the license agreement which is typically considered an executory contract (even if the license is fully-paid). The licensor or its trustee in bankruptcy may also reject any agreement supplementary to the license (e.g., technology escrow agreements). Section 365(n) does not protect trademark licenses. Most jurisdictions do not have IP license protection similar to Section 365(n) of the U.S. Bankruptcy Code Under Indian law, failure to pay applicable stamp duty may make the IP agreement inadmissible in court or other proceedings
    • IV.International IP Dispute Resolution In cross-border transactions involving IP/ technology, subject to certain exceptions, arbitration is a better dispute resolution mechanism.  An award by the national courts of the non-breaching party may not be automatically enforceable in the national courts of the breaching party  International litigation management can be costly and subject to delays, uncertainty, and sometimes protectionist foreign courts  The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958:  Subject to limited exceptions (e.g., subject matter is not arbitrable, award contravenes public policy) courts of contracting states must give effect to private agreements to arbitrate and to recognize and enforce arbitration awards made in other contracting states.  148 contracting states (including India and the U.S.); 47 countries are not parties (including Taiwan)
    • IV.International IP Dispute Resolution (cont.) International Arbitration:  Institutional arbitration:  ICC, ICDR, LCIA, SCCAM, SIAC, SCC, JCAA, CIETAC, JAMS, WIPO (specializes in IP disputes)  Ad hoc arbitration: UNCITRAL Model Law on International Commercial Arbitration IP Exception: Licensors typically expressly reserve rights to access courts to protect their IP  Time is of the essence in protecting one’s IP; courts may be able to provide interim relief in the shortest time-frame  Ex parte relief may be necessary if bad faith is suspected; ex parte arbitration orders are enforceable under the New York Convention (Art. V(1)(b) requires notice and opportunity to present)  A third party is involved in the IP dispute; arbitration is limited to the parties to the contract
    • IV.International IP Dispute Resolution (cont.) Local and foreign counsel should be consulted to select the appropriate arbitration forum, rules and venue for the contract Express provisions, whetted by local and foreign counsel, should be included in the contract
    • V. Choice of Law Most jurisdictions respect the choice of law selected by parties to a private contract (including India and U.S.); but expressly exclude conflicts of law principles that would change the parties’ choice of law selection In U.S. – India transactions, U.S. federal law and New York state law is most typical; English law sometimes accepted  Caveats:  Certain foreign local laws may still apply (e.g. export laws, FCPA/ anti-corruptions laws, IP laws, antitrust/ competition laws)  Typically, the following types of contracts will be subject to foreign local law:  Contracts between local parties (e.g. contracts between a U.S. company’s Indian subsidiary and its Indian partners)  Contracts with governmental entities  Contracts with consumers/ individuals
    • V. Choice of Law (cont.) U.N. Convention on Contracts for the International Sale of Goods (UNCISG):  UNCISG will apply to licenses involving international sale of goods (e.g., software) unless the contracts choice of law clause specifically excludes UNCISG terms  The UNCISG applies to contracts for the sale of goods between parties from countries that are signatories to the UNCISG. The U.S. is a signatory and India is not. May be implicated if the Indian company’s affiliate based in a UNCISG signatory country is contracting.  Permits parole evidence, oral contracts (proven by any means), and other atypical provisions
    • Conclusion Cross-border licensing transactions involve a complex interplay of national and international laws and many pitfalls for the unwary Business, IP, and legal due diligence is paramount in achieving transaction success and adequate time should be allotted for such due diligence Licensors and licensees should each work with counsel in the countries in which the licensor and licensee does business and counsel where the IP will be licensed to avoid pitfalls in cross-border transactions
    • Questions? Questions? Satya S. Narayan Bio: http://rroyselaw.com/satya_narayan.html E-mail: SNarayan@rroyselaw.com Phone: 650.521.5745 PALO ALTO LOS ANGELES SAN FRANCISCO1717 Embarcadero Road 11150 Santa Monica Blvd., 135 Main Street, Palo Alto, CA 94303 Suite 1200 12th Floor Los Angeles, CA 90025 San Francisco, CA 94105 16