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

1. Sublicenses

1.1 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.

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

Optional Additional Clause Elements

1.3 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.

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

1.5 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.

1.6 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.

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

Clause Alternatives

Alternative 1 - Sublicenses Require Approval

1. 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].

Alternative 2 - No Sublicensing

1. 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.

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)