When it comes to cross-border business transactions involving intangible assets, local legal advice can be essential to ensure the enforceability of key contract terms. In the following Q&A, Paul Armitage in Canada, Vivian Desmonts in China and Mathilda Davidson in the UK discuss issues of local law enforceability of certain key clauses when commercializing intellectual property.
Paul Armitage (AP): Let’s start by examining the commonly used clause of on-lending of intellectual property. If you are an IP licensor, you may wish to access enhancements made by your licensee, either during the term of the agreement or at its end. This would generally be achieved by on-lending, either by assignment or licensing of the improvements from the licensee to the licensor. From a licensor’s perspective, a retrocession can be a very desirable clause that serves different purposes. These include allowing the licensor to benefit from further developments of their valuable intellectual property, which can then be incorporated into their product, or preventing their patent holders from patenting the licensee’s improvements and blocking the licensor. However, when listing grants in agreements, local legal requirements may vary.
Vivian Desmonts (VD): It is especially important in China to have access to improvements as many factories develop their own technologies and may even become competitors of their customers. For example, consider a Canadian buyer of goods to be manufactured by a supplier in China under an original equipment manufacturer agreement, and that buyer / licensor brings their own technology to the supplier. If, during the manufacturing process, the supplier develops a technological improvement that is patentable, he would be considered the inventor of the improvement and will normally own the intellectual property rights, although he developed that improvement through the technology of its customer in the first place.
Chinese law has only recently changed: the parties can now specifically agree in their written contract that all technological improvements made by the licensee should belong to the licensor, provided that “reasonable compensation” is paid to the licensee, in addition of the normal purchase price. paid by the licensor for the goods.
Mathilda Davidson (MD): This should also be taken into account if you are contracting in the UK. In English law, the position on the ownership of improvements is similar to that in China. So if the agreement is silent, the property will generally follow the inventory and the creator of the improvement will own it. Also keep in mind that if you are considering such arrangements as an automatic assignment or exclusive re-licensing of improvements from licensee to licensor, you should also consider local competition law requirements.
PENNSYLVANIA: Let’s move on to the right of first refusal (ROFR) and its close cousin, the right of first negotiation (ROFN). The basic theory behind these clauses is that if you find a business that once has something useful for you, there is a good chance it will have something useful for you again. Thus, these clauses give the holder the right of first choice on new offers from its licensor, which could include a new product, territory, application, area of use, etc. The key difference between a ROFR and a ROFN is that a ROFR gives you the right to match a specific deal offered to the other party, while a ROFN allows you to negotiate a deal with the other party. While these clauses are beneficial to the owner, a question to ask is what exactly do you acquire under an ROFR or ROFN, depending on the applicability issues of local law?
MARYLAND: From an English law perspective, questions may arise as to the enforceability of these types of clauses. When I see provisions of this nature in contracts, they usually do not amount to much more than an “agreement of understanding”, which is not enforceable under English law. So I would say that from a business standpoint they can be a useful piece in your toolkit for IP contracts, but in reality the most you can get is the right to participate in any future discussion. partnership or sales.
PENNSYLVANIA: Another area where local legal advice can be crucial is the treatment of common intellectual property. If your agreement only states that the intellectual property will be “co-owned”, what rights do your co-owners have under applicable law, and if they are different from what the parties intend, what clauses do you need? include in your agreement to ensure that parties’ intentions are reflected? Under Canadian law, for example, each co-owner can assign all of their rights in a patent to another party, but cannot license their rights without the consent of the other co-owners. The policy behind this is that the assignment of its entire interest does not dilute the interests of the other co-owners, and is therefore permitted by Canadian law, but the licensing of others could dilute and therefore requires consent. co-owners.
VD; China’s patent law allows joint owners to use the patent independently or to grant the patent to a third party through a non-exclusive license. In this case, the possible benefits of a license to a third party must be shared with the other co-owner. For joint ownership of brands, Chinese law is not so clear. Our recommendation is to enter into a detailed written contract on the rights and obligations of each co-owner, ensuring that they are duly registered with the competent administrative authority for trademarks in China.
MARYLAND: In the UK, each co-owner of a patent can use the patented technology himself, but cannot license, assign or mortgage it without the consent of the co-owner. This is even more restrictive than the situation described by Paul in Canada.
PENNSYLVANIA: Therefore, if you are dealing with joint intellectual property in an agreement, it is important to get legal advice on what this means under the applicable law of the agreement, and whether you subsequently want different treatment. , make sure it is written in the agreement.