I received a query asking opinions on which portions of an otherwise boilerplate technology licensing contract merit special attention. Setting aside for a moment my belief that there is no “boilerplate” and every contract provision requires review, here’s my brief take on a few important technology licensing provisions.
License Fee. Obviously, the parties will be concerned with the amount of money that exchanges hands. Setting the license fee is often the highest hurdle for the parties – especially when there are no objective benchmarks to determine the value of the technology. In those circumstances, the final license fee is determined by bargaining power, negotiation skill, and an accurate sense of what the market will bear.
Representations and Warranties. In our litigious world, warranties are often hotly negotiated provisions. The customer buying the rights wants the technology company to guarantee that the customer will not have any problems or suffer any losses as a direct or indirect result of using the technology. In contrast, the technology company wants to limit its exposure to liability and provide as few guarantees as possible.
Indemnification. This is the technology company’s promise to reimburse the customer for any money the customer loses due to the technology company’s breach of any of the guarantees made in the representations and warranties. The technology company need not leave its responsibility to indemnify the customer completely open-ended. For example, a technology company might use language that (i) limits indemnification to losses suffered only in the United States, (ii) gives the technology company the right to negotiate and settle any covered claims made against the customer, and (iii) explicitly negates the technology company’s indemnification obligation if the customer uses the technology in an unauthorized manner.