Licensing Agreements Simplified

I am frequently asked to provide guidance on intellectual property license agreements, and thought a short guide would be helpful to readers. If you compare intellectual property (IP) rights to a bundle of sticks, the licensee would be required to obtain a couple sticks out of that bundle to continue her project. A license is granted when one obtains a subset of the full ownership rights of intellectual property.

What can the licensor and licensee expect to see in a license agreement? These agreements vary greatly, depending on the unique circumstances of each deal, including the type of IP being licensed, the licensee’s intended use of the IP, and the size of the contracting parties. Here’s a list of some of the clauses that are common to intellectual property licenses:

Definition of the intellectual property being licensed. This can sometimes be heavily negotiated because this defines exactly what the licensee can sell by using the licensed IP.

Scope of the license. Licenses can vary greatly. Sometimes there are geographic limitations to where a licensee can exploit her license, sometimes there are temporal limitations. Channels of trade may also be restricted—for instance, a license to use some software license may be limited to software sold in retail stores, or internet stores. The licensee may also be limited in how she can use her license. Licensors may also wish to set minimum or maximum price levels a licensee can sell a product at. There are other elements that can limit the scope of use; these negotiations can become quite complex.

Royalty terms. For obvious reasons, these are some of the most heavily-negotiated terms in a license agreement. Royalties can be paid in a variety of ways—in a lump sum, or on a regular, ongoing basis. The calculation of royalties may be done using a variety of methods, including looking at net sales resulting from the license, or profits resulting from the license. The payment method, term, and regularity will need to be agreed upon by both parties.

Audits. With any calculation of royalties based on a licensee’s sales or performance, the licensor will want to conduct regular audits of the licensee’s activities. Parties will need to decide when these will take place, by whom, and who will bear the costs of such audits.

Enforcement. Parties will also need to determine whose duty it is to enforce the intellectual property associated with the license. There are several ways of organizing this duty, and the stakes can be high for all parties involved.

Modifications to Intellectual Property. Will the licensee be able to modify or improve the intellectual property in any way? Who will own the rights to such modifications?

This list represents a sample of the many considerations that may arise in a licensing transaction. If you have any further questions about licensing agreements, then please contact Veronique Kherian at vkherian@higagipsonllp.com. You can also reach Ms. Kherian by telephone at (415) 692-6520.

California Supreme Court Holds That Employers Are Not Required to Police Employee Meal Breaks

The California Supreme Court issued an opinion recently in Brinker v. Superior Court, that has a huge impact on California employers. At issue was the question of whether or not employers are required to police employees’ actions to ensure that the employees are not working during these breaks. Employees who file wage and hour claims have long alleged that employers were liable to the employee for compensation when the employer provided time for the meal breaks but failed to ensure that the employee refrained from performing any work related tasks during mandatory meal breaks. Employers in response have long argued that they have met their obligations under the Labor Code by providing the meal breaks and that they bear no liability if an employee violates the intent of the break and performs work related tasks during the meal break period.

Per the California Labor Code section 512, an employee is entitled to a 30 minute meal break after 5 hours of work. Interpreting the Labor Code, along with the Wage Orders and Opinion Letters issued that attempt to further explain this law, the Court held that the condition precedent that triggers an employer’s duty to provide a meal break is employment of the person for at least 5 hours. The resulting entitlement by the employee is a meal period of at least 30 minutes. The Court could find no statutory or public policy basis for concluding that an employer is obligated to police employee meal breaks to ensure that the employee is not working during that time. On the contrary, the Court held that it would be inconsistent with the clear plain meaning of the statute to interpret the law to mean that the employer must exert control over the employee during the meal break to confirm that no work is being done. Restated, the imposition of a policing requirement would in effect require the employer to exert control over the employee during the meal break which would run counter to the public policy behind the very purpose of the meal period….relinquishment of employer control during the meal break period.

If you have questions about how this recent ruling by the California Supreme Court could impact your company’s operations, then contact Ronnie Gipson at 415.692.6520 or by email at Gipson@higagipsonllp.com.