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Friday, 22 March 2013

Perpetual Motion, Perpetual IP Licence, Perpetual Uncertainty

It is the seemingly mundane aspects of IP licensing that often prove to be the most vexing. Consider the following: the young lawyer responsible for drafting an IP licence agreement comes to you with the following question:
"The parties do not want to fix a limited period of time for the duration of the licence agreement. How should I deal with this?" 
In this Kat's experience, he is familiar with are three principal options: (i) provide that the licence is "perpetual'; (ii) provide that the licence is "without limitation of time"; (iii) be silent on the matter. Does it matter which option is selected? Permit this Kat to offer a few thoughts.
1. This Kat has always a primordial resistance to the notion of a "perpetual" IP licence. At the physical level, nothing is perpetual, not the existence of our universe, not the physics of motion. Should the legal world be any different? Indeed, it has been his understanding that the grant of a "perpetual" licence is disfavoured by the courts (more vigorously so perhaps when there is no certain term of validity for the underlying intellectual property right, such as in trade marks). As such, the court allows itself judicial leeway to limit the purported perpetual term of the licence by tying it to other termination events provided by the licence. The grant of use of the IP right cannot continue if the underlying contractual obligation is brought to end.

2. More interesting is the possibility of enabling the parties to limit the term of a perpetual licence even in the absence of a termination provision in the agreement. It has been suggested (even if his feline eyes have never actually seen a judgment to this effect) that, in such a case, either party has the right to terminate the agreement and licence upon providing reasonable notice. This seems like a harsh result, though, in light of the fact that the agreement itself provides for a "perpetual" licence. Perhaps one way to ameliorate this seemingly draconian result is to provide that in circumstances where a "perpetual" licence is at issue, the totality of the circumstances should be taken into account in addition to the mere provision of reasonable notice.

3. In some circumstances, depending upon how bare-boned the licence terms are, it is conceivable that a court may view the use of the term "perpetual" to reinforce the argument that the purported licence is in fact a full transfer of rights to the transferee. Such a result will not work if the purported perpetual licence is non-exclusive. 
4. Unlike a perpetual licence, a licence that is without limitation of term seems to draw inspiration from Schrödinger's cat, in that it both addresses and fails to address the issue of the duration of the licence at the same time. This distinction may be most relevant with respect to termination upon provision of reasonable notice. Here, in contrast with the perpetual licence, it can be argued that the parties contemplated that the licence could have an end to its term. As such, it may be more reasonable to rely on the general law of contracts in the jurisdiction with respect to termination of the licence upon the provision of reasonable notice, without the need to also rely on evidence regarding the totality of the circumstances.

5. A licence agreement that is silent on term of the licence would appear to be the most clear-cut situation where reliance on the general rules of contract and implied contractual provisions will come into play. At the least, it provides the strongest case in favor of termination without cause upon the provision of reasonable notice to the other party.
A final word—in his far distant feline past, this Kat tried to develop a comprehensive framework for understanding how term and termination should be handled in an IP licence agreement when the licence did not explicitly provide so. At some point, he was forced to raise the white flag of surrender. Still, given the uncertainties involved, this Kat remains truly amazed the prevalence of the clauses discussed above in IP licecse agreements. Is it the fault of the lawyers, their clients, or both? This Kat does not have a definitive answer.

More on Schrödinger's cat here.


Ron said...

The policy of the BSI as set out in their (now withdrawn) standard BS 0 was that something that was protected by a patent would only be incorporated in a British Standard if the patent were irrevocably endorsed "Licence of Right". I no longer have ready access to copies of British Standards and do not know what the current situation is, and the BSI web site is not much help.

Marco Alexandre Saias said...
This comment has been removed by the author.
Marco Alexandre Saias said...

(sorry, I've read some incorrections in my early comment due to my own time limit at that moment, so, I deleted it and ammended it)
(i) provide that the licence is "perpetual'
I believe that due to the time limited nature of IP rights (except in trademarks that can be really perpetual), the licence will always be limited to that natural time limit. I don't understand the necessity of considerer a perpetual licence when, in the case of a patent in a few years will be at the public disposition, and, in case of copyrights, it is just a matter of time, but, it will be a lucky licensee the one that will resist in the market for more than 70 years pma...

(ii) provide that the licence is "without limitation of time"
"Without limitation of time" is a type of time limitation (and I know how awkward this might sound), but, if you define something even by unlimited it, you already limit it by define it... (the true Schrödinger's cat!)

(iii) be silent on the matter
Some legislations might regard these clauses as void/invalid/ineffectual, or, in case of such silence, impose a time limit presumption to the license.
Portuguese Copyright Law, article 43/4, imposes a time limit presumption of 25 years;
Spanish Copyright Law, in its article 43/2 imposes a time limit of 5 years (no void to the license).

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