The intellectual property and technology belonging to Mining Equipment, Technology, and Services (METS) businesses will often be their most valuable assets. It is not at all uncommon for an entire company or business venture to be built around a single idea or patent. In some cases, companies enter into agreements with universities, technology programs, or mining companies to commercialise their technology.
For this reason, once a METS company enters into formal negotiations for a contract in order to license a patent or technology, they need to be prepared to discuss the specific terms and conditions that are to be attached to the contract, and in turn they must be able to negotiate to ensure the best protection is afforded to their technology/patent. This post will explain the role a license agreement plays, as well as some of the key features a well-prepared licence agreement will have under Australian law.
What is a licence agreement?
In simple terms, a license is the grant of permission by one person to someone else to do or use something. It is generally made between two parties: the licensor (the owner of the patent/technology) and the licensee (the person who wants to use the patent/technology). It can be helpful to think of the licence agreement as giving permission to the licensee for them to act, in a limited sense, as if they were the licensor (that is as if they were the owner of the patent/technology).
There are various types of licences that will be applicable to METS companies, depending on the type of specific activity they carry out and the technology or patent they wish to license. In broad terms, the most important distinction will be whether the licence is exclusive or non-exclusive. An exclusive licence is granted on an exclusive basis, preventing all others from using the technology under the licence. On the other hand, a non-exclusive licence can be issued multiple times by the licensor.
What are the key commercial elements of a licence?
While it is important to stress that any good licence agreement will be drafted with specific reference to the technology itself, METS companies should generally still be addressing a few key commercial subject areas in licence agreements. These include:
- Description of the technology: a brief overview of the technology that is to be subject to the agreement.
- The scope of the grant: It is critical that the scope and restrictions of the licence are clearly defined.
- Term and renewal: Commencement date, duration, renewals, extensions, termination and associated issues should all be clearly set out.
- Exclusivity: whether the licence is granted on an exclusive or non-exclusive basis.
- Territory: The licence agreement will need to define the applicable states and/or territories where the licence is to be valid for.
- Payments to the licensor: Almost exclusively, payments will be comprised of an initial upfront payment, as well as ongoing royalty fees. The formula for determining the royalty payments varies widely from licence to licence.
- Performance standards and quotas: Tied to royalty payments, often the licensor will seek to impose certain standards and minimum levels of performance. An alternative term to this are “best efforts” provisions, which can be typically tied with a minimum royalty level to be paid regardless of actual performance, helping to balance the interests of all parties.
Keep in mind that these are only a handful of the clauses that a detailed agreement will contain. Some other typical clauses include sublicense rights, terms of renewal, transferability, technical support and assistance, and accounting and reports.
What are the key legal elements of a licence?
In addition to the commercial aspects of a licence, it is important to consider the various legal issues that will affect the drafting of an agreement. These include:
- Limitation of liability: It is important that the licensee has an obligation to protect and indemnify the licensor against any claims or liabilities that may result from the licensee’s use of the patent/technology covered under the agreement.
- Breach of licence terms: Any potential agreement should detail what actions will constitute a breach, as well as how to remedy such actions etc.
- Right of termination: Tied to breach of licence terms, such clauses will detail the circumstances where a party has the right to elect to terminate the agreement.
- Intellectual property: generally, the intellectual property in a licensed product will remain exclusively with the licensor. However, the parties need to consider who will retain such rights in instances where the licence agreements allow for the licensee to modify or further develop the technology in question.
- Insolvency: These provisions will typically allow the termination or modification of the operation of the licence agreement where one of the parties becomes insolvent.
Further legal provisions that should be provided for include non-circumvention clauses, transfer pricing clauses, the effect of termination, lapse of rights, warranties, and infringements of the technology or patent.
We are often asked what the best outcome is for METS licensing agreements and their negotiation. In broad terms, our response is invariably a “win-win” agreement for both the licensor and licensee. This means that both parties need to be able to come to the table willing to cooperate and grant concessions.
At Harris Gomez Group, our team has a wealth of experience in assisting METS companies with the negotiation and drafting of licence agreements, combining our legal knowledge with a commercial sensibility. We take the time to visit our client’s facilities so that we can learn as much as possible about our clients business making it easier for our team to draft licensing agreements. Our ability to assist clients outside of Australia is backed up by 16 years of helping foreign companies enter and operate in Latin America.
Harris Gomez Group is an international law firm with offices in Santiago, Bogotá, and Sydney. Our firm has been working with mining equipment, service, technology providers both in Australia and internationally for 16 years. We find that our clients appreciate that we understand the industry, provide fixed pricing, and take the time to learn our clients business.
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