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Sublicenses

The Sublicenses clause is a highly common clause in Technology License Agreements but also very deal-specific.  The right to grant sublicenses ranges from an unfettered grant to only upon approval of the Licensor.  Additionally the scope of rights that the Licensee can sublicense is often narrower than the scope of the original license (e.g. the purpose or end-product is limited to those specifically enumerated).

Moreover, clause examples also vary widely in the additional protections they employ on sublicenses, including limiting subcontractors, requiring notice and/or copies of any granted sublicenses, requiring the Licensee to be responsible for compliance of sublicensees and preventing sublicensees from sublicensing themselves.

Standard Clause

Right to Grant Sublicenses. The foregoing license includes the right of Licensee to sublicense such license rights to Licensee's resellers, OEMs and end user customers in connection with the use and/or distribution of Licensee Products.

No Greater Rights. All sublicensees shall execute and be subject to a Sublicensing Agreement, with terms no less protective of Licensor than this Agreement.

OR

Approval Required to Sublicense. Licensee may not grant sublicenses of the rights granted in this Agreement except with the prior written approval of Licensor [which shall not be unreasonably withheld].

OR

No Sublicenses or Subcontractors. Licensee shall have no right to, and shall not, sublicense any of its rights under this Agreement to OEMs, consultants, contractors, or any other third parties. Licensee shall have no right to, and shall not, use third parties to manufacture, develop, test,or support any Licensee Products without Licensor's prior written approval, which shall not be unreasonably withheld, except that Licensee shall have the right to use those subcontract manufacturers listed on the Subcontractor Exhibit attached to this Agreement without such approval.

Optional Additional Clause Element

Subcontractors. Licensee may exercise the rights and licenses granted under this Agreement through subcontractors; provided, that (i) such subcontractors are bound by a confidentiality agreement with terms no less restrictive than those contained in this Agreement, and (ii) Licensee shall not have the right to sublicense such rights or licenses.

Notice.  Licensee shall promptly notify Licensor in writing of any sublicenses granted to sublicensees.

Copy of Sublicense Agreements. Licensee agrees to provide to Licensor a copy of any agreement pursuant to which a sublicense is granted to the Licensed Technology promptly after the signing of such agreement.

Licensee Responsibilities.  Licensee will use commercially reasonable efforts to ensure that such sublicensees comply with the terms of this Agreement and will inform Licensor promptly of any known violation, infringement or breach.

No Sublicensing by Sublicensees.  Sublicensees under this Section shall not have the right to sublicense the rights granted under this agreement.

Discussion

When negotiating licensing or collaboration deals involving universities and/or biotechnology, pharmaceutical and medical device companies, it is a good idea for the parties to lay out the terms related to sublicensing early in the contract negotiations. A sublicense is a grant by the original licensee to a third party (the sublicensee) under the patent or other technology rights granted to the original licensee by the licensor.

There are key issues to consider, such as whether a licensee will have the right to sublicense with or without the licensor's consent, how sublicense income will be shared, and whether any sublicense will survive a termination of the license agreement.


F. Andrew Anderson, Sublicense Rights - A Key Issue in Technology Licensing (via  Edwards Angell Palmer & Dodge LLP)

Sublicensing is a tricky issue for tech transfer offices, with the potential to dilute the overall value of licensed IP but also offering the possibility of more revenue from downstream deals that can boost the TTO’s overall return. Getting favorable terms, several veteran negotiators say, is critical to both protecting your organization’s rights and assuring a strong future royalty stream.
Focus on sublicensing to protect IP, maximize revenues (via  Edwards Angell Palmer & Dodge LLP)

There are a host of issues related to new relationships. For starters, you agreed to an open relationship, and you granted rights to sublicense. When the terms were drafted, everyone agreed that the sublicensee could make, use or sell licensed products and that the flow‐through royalties would be 25% of the royalty payments the licensee received. Now you’ve learned that the licensee has such a relationship with another party who is selling the licensed technology in Europe. The licensee hasn’t told you about it, but your license manager saw the press release. When you ask the licensee, you’re told that this is not a sublicense but merely a distribution agreement and that the distributor is a third party. What your licensee isn’t telling you is that they sell to this distributor for an agreed upon reduced price, a transfer price, and the licensee gets a payment of 3% of the distributor’s sales. Instead, the licensee claims that this isn’t a sublicense because they don’t have access to any of the licensed technology. Distributors, marketing partners and development partners are frequently masks for sublicenses, and a sublicense by another name may still be a sublicense. You may not be getting your fair share.
Debora R. Stewart and Judy A. Byrd, It’s Just Not Fair: Unintended and Unforeseen Interpretations of License Agreement Language (PDF via  Invotex Group)

Examples of [Sample] Clause

License to Ceres. ...Ceres and Ceres Affiliates shall not have the right to grant sublicenses under the license granted by this Article to Third Parties to use Monsanto Enabling Technologies (including the right to transform plants with vectors supplied by Ceres or Ceres Affiliates), but shall have the limited right to grant sublicenses under the license granted by this Article to Third Parties (i) to propagate, grow, harvest, use, sell, have sold and offer to sell plants that both contain Ceres Sequences or Licensed-in Sequences and have been developed or transformed by Ceres or Ceres Affiliates with the use of Monsanto Enabling Technologies including progeny of such plants, and (ii) to make, have made, import, use, sell, have sold and offer to sell products produced from such plants that contain Ceres Sequences or Licensed-in Sequences and progeny of such plants; further provided that in case of Licensed-In Sequences, then any such sublicense under this Article shall not be exclusive to the provider of the Licensed-In Sequences. Ceres and Ceres Affiliates shall be responsible for maintaining sufficient records on the use of Monsanto Enabling Technology so that plants can be identified. Ceres or Ceres Affiliates will notify Monsanto in writing as soon as reasonably possible after the grant of any sublicense of the name and address of the sublicensee, the scope of the sublicense and the Monsanto Enabling Technologies covered by this Agreement which are included in the sublicense. Ceres agrees to grant and hereby grants a royalty-free, nonexclusive, worldwide license, with the right to grant sublicenses, to Monsanto and Monsanto Affiliates to any Ceres Improvements.
(Enabling Technology License Agreement, August 29, 2011, [Ceres Inc. and Monsanto Company])

License.
...
LICENSEE may grant sublicenses under LICENSED SUBJECT MATTER consistent with the terms of this AGREEMENT provided that LICENSEE is responsible for its sublicensees relevant to this AGREEMENT, and for diligently collecting all amounts due LICENSEE from sublicensees. If a sublicensee pursuant hereto becomes bankrupt, insolvent or is placed in the hands of a receiver or trustee, LICENSEE, to the extent allowed under applicable law and in a timely manner, agrees to use its best reasonable efforts to collect all consideration owed to LICENSEE and to have the sublicense agreement confirmed or rejected by a court of proper jurisdiction.

LICENSEE must deliver to UTMDACC a true and correct copy of each sublicense granted by LICENSEE, and any modification or termination thereof, within thirty (30) calendar days after execution, modification, or termination.

If this AGREEMENT is terminated pursuant to Article XIII-Term and Termination, BOARD, UTMDACC and HJF agree to accept as successors to LICENSEE, existing sublicensees in good standing at the date of termination provided that each such sublicensee consents in writing to be bound by all of the terms and conditions of this AGREEMENT.
(Patent and Technology License Agreement, August 15, 2011, [University of Texas, The Henry M. Jackson Foundation and Advanced Peptide Therapeutics, Inc.])