Maximizing License Agreements With Precision

• Published date: 22 January 2024
• Subject Matter: Intellectual Property, Patent
• Law Firm: Harness IP
• Author: Bryan K. Wheelock

No one sets out to draft an imprecise license agreement; occasionally that is the unfortunate result. Negotiation helps get what you want.

No one sets out to draft an imprecise license agreement, but occasionally that is the unfortunate result. One source of imprecision is that the inherent ambiguity is not always apparent at the time of negotiation - it is difficult to predict the future. Another source of imprecision is that it is sometimes simply tolerated because of negotiation fatigue - "Close enough, let's sign." A final source of imprecision is the fear that further clarification might adversely affect the terms.

The majority of license agreements are successes, with the licensor and licensee each performing their respective obligations and never looking at the agreement again. However, whatever the source, imprecision sometimes causes spectacularly bad results, particularly where that ambiguity concerns who is granting the license, who is receiving license and what is being licensed. Each of these elements needs to be carefully thought out and defined, not just for the current time frame but for the future as well.

Who is the Licensor?

The licensors are always defined in the license agreement, but depending upon the definition, this can change over time - and with them, the scope of the licensed properties. This was recently illustrated in VLSI Tech. LLC v. Intel. Corp., 2023 U.S. App. LEXIS 31861, __ F.4th __ (Fed. Cir. 2023).

VLSI sued Intel for patent infringement, and in March 2021, the jury awarded VLSI $1.5 billion for infringement of U.S. Patent No. 7,523,373 and $675 million for infringement of U.S. Patent No. 7,725,759. On appeal, Intel complained that the district court should have allowed it to present a license defense. It turns out that in 2012 Finjan granted Intel a perpetual and irrevocable license to patents owned and controlled by Finjan's "affiliates," defined as "any Person that, now or hereafter, directly or indirectly through one or more entities, controls or is controlled by, or is under common control with" Finjan. Intel pointed out that before trial Finjan was acquired by Fortress (which owned VLSI). This caused Finjan and VLSI to be under the common control of Fortress, and according to Intel, "affiliates" under the provisions of the Finjan license. Intel argued that it was therefore licensed under the VLSI patents, and could not be an infringer. The Federal Circuit did not rule on this defense, but did find that the...