IP As Property / IP Rights Licensing / International Licensing

The factors discussed above lead to a conclusion that one of the most important clauses in many international intellectual licensing agreements is the termination clause defining how the agreement can be terminated. It is important not simply and unthinkingly to throw in a boiler plate termination clause from a book of precedents but to give some careful thought as to the circumstances under which one might wish to terminate an agreement in whole or in part and to what the consequences of that termination might be. Such consideration may include not only issues relating to the other party, and in particular who has the controlling voice therein, and issues relating to how the market develops for the licensed product but also political factors relating to the country or countries in which the licensee will be active.

For example, a license agreement might provide for the possibility of termination if a certain individual ceases to be active in the licensee's affairs or if there is a change of control of the licensee. The agreement might set up an agreed timetable for achieving certain objectives, for example certain levels of sales or, where such approvals are necessary, obtaining certain governmental approvals and provide for termination or some other remedy (for example converting an exclusive license into a nonexclusive one) if these objectives are not achieved.

In general, countries oversees do not have specific provisions in their laws dealing with termination of intellectual property licenses. However, many countries do have specific provisions relating to termination of agents or distributors and, therefore, one must be careful in drafting an intellectual property license agreement to ensure that the licensee does not fall within the definition of an agent or distributor. Typically such laws require that the agent or distributor must be given compensation for the effort that has been made in building up the local market. In some countries such provisions may even apply if the agreement comes to its natural termination point. These problems are particularly evident in some Trademark license agreements but can also occur in Patent license agreements where supply of materials is essentially part of the deal being concluded. To some extent one can try to protect against the problems of distributor or agent termination laws by keeping the license agreement separate from any supply agreement. However, there is always a risk that local authorities will regard the two as being so closely intertwined that such separation is not accepted.

One additional problem in drafting agreements where the termination is of importance is that, of course, it is psychologically difficult to deal with this issue at the point where everyone is enthusiastic on setting up a new relationship; for the lawyers to continually brood on what might happen in case of termination is sometimes regarded by one's clients as being counterproductive. Nevertheless the point is an important one and should be thought about carefully, even if in the end one agrees for practical reasons simply to define the agreement for a fixed period of years and permit termination only if there has been a material breach of contract. Even in this case, however, it may be prudent to define exactly what is meant by a "material breach" and to keep the initial term fairly short. Normally one can provide for renewal if things proceed satisfactorily.