Let me out of here! Like many relationships, license agreements may be entered into with optimism and the best of intentions. However, it is worth remembering the old adage: hope for the best, but plan for the worst.
To further this objective, the “Term” (i.e. how long the license is intended to last) should be clearly specified.
Also, both parties (and in particular the Licensor) should turn their minds to the types of things that might go wrong in the relationship. Provisions should be included that provide the offended party with the option to exit the relationship in the event that such things occur.
There are an infinite number of problems that might arise for the Licensor during the term of the license, including:
- the Licensee stops making payments, or is not paying the appropriate amounts, and/or is not paying in a timely manner;
- the Licensee fails to live up to performance obligations relating to the volume or value of licensed products sold;
- the Licensee is carrying on business in such a manner that damage is being caused to the licensed property of the Licensor; and,
- the Licensee is sued by a third party based on a product liability claim or claim of infringement of third party IP rights.
Accordingly, it is often advisable for the Licensor to have terms in the license enabling it to be terminated upon the occurrence of one or more specified events.
Likewise, the Licensee may wish to have exit options specified in the agreement. For example, such provisions may allow the Licensee an easy exit if the planned exploitation of the licensed IP rights does not go according to plan. Also, the Licensee may wish to have the option to terminate in the event of the Licensor failing to live up to certain obligations he might have, such as failing to properly secure or maintain certain registered intellectual property rights or failing to take enforcement action against third party infringers.