As noted by Mike in referencing Jacobson v. Katzer, the courts distinguish between what I will call “core rights” owned by and licensed out by the IP owner and non-core rights that are nevertheless important to the parties. By “core rights” I mean those rights that define the type of intellectual property, such as the exclusive rights to copy, distribute, display and perform, etc., for copyrights.

Thus, I tend to distinguish the “license” or “license grant” to be the contractual provisions (written or otherwise) by which the IP owner specifies the extent to which the licensee may exploit the core rights (regardless of whether magic words like “license” or “right” or “permission” are used). The other provisions of any agreement are certainly important and binding, but they are not part of the core license, as I see it.

Does this distinction have a difference? I think the difference as noted in Jacobson v. Katzer, is found in the remedies for breach. Breach a core right, and you have an “infringement,” for which irreparable harm may be presumed, which in turn increases the likelihood of the court granting injunctive relief. The presumption does not apply to breaches of non-core rights.

From a policy standpoint, I think Ken’s approach makes sense. The distinction of “license” rights v. “covenants” of a contract seems like hocus pocus. Wave your wand over the contract, and breach of certain provisions leads to an injunction more easily than breach of other provisions. However, the current policies have developed precisely because intellectual property rights are rights in intangibles, not rights in hard goods, so enforcement is that much more dependent on injunctive relief from the courts.

The jumping off point for this was a trademark license. Trademarks are that much more interesting (at least to me ;-) ) because they are not rights in gross, but appurtenant rights to goodwill. In drafting a license agreement for a trademark, you are not only tracking the core rights that state the goods and services with which the licensee may associate a mark, you are also tracking the flow of goodwill generated by the use of the mark.

Regarding assignability, I often state in the license grant that the license is “nonassignable (except pursuant to the provisions of Section ),” or “nonassignable (except pursuant to the assignment provisions stated in this agreement).” It ties the two provisions together.

Let me know your thoughts,

Fred Wilf

In a draft of a license where the difference between contract and license was important (because the licensees were consumer who might not have the legal capacity to contract), I specified that “shall not” meant a contractual prohibition and “may not” meant a limitation on the license. (I did so in much simpler language, though.) Then I assiduously avoided saying that the licensee “shall not and may not” do something, because it made me sick to my stomach.

Then I did something completely different and didn’t use that draft. Instead, I used “you agree to . . . ” and “we permit you to . . . but not to . . . “. It worked fine, but only because it was a short document carefully written to an 8th grade reading level. At least it didn’t turn my stomach.

I always understood “pay to the order of Joe” to mean that the instrument is negotiable and Joe can instruct the bank whom to pay, where “pay Joe” means that the bank is to pay Joe, not someone else. But maybe I made that up.

Chris

But that doesn’t mean you have to stick with magic. You can instead adopt the approach of a post-modern magician and do the trick, but with all illusion stripped away, so the audience sees exactly what’s going on.

In practical terms, maybe one could add to a license agreement a “provision specifying drafting conventions” that is explicit as to the relationship between the license and the rest of the contract.

And thank you for mentioning pay to the order of. I should look into that.

Ken

Unfortunately, statutes have not been written, and common law has not evolved, in a manner that fits within a style of drafting devoid of magic words and counter-intuitive implications. Without an understanding of the law of negotiable instruments, for example, a drafter might believe that “pay” is no different from (and always preferable to) “pay to the order of”.

While your advocated style of drafting may make for elegant and generally unambiguous contracts, drafters must take into account the legal framework under which the contract is drafted. I certainly believe it wise for contract drafters to question the significance of what appear to be magic words. But they should not thoughtlessly discard the arcane tried-and-true because they’ve been told that there’s no such thing as magic.

I think the problem is that IP has become a semi-autonomous speciality, so IP drafting has started to mutate independently of general transactional drafting. It would be better for all concerned if there were more cross-breeding.

Ken

For example, a license grant might specify that the patent license is limited to sales within a particular industry. Selling patented products outside of the scope of the license would be an infringement of the patent, giving rise to rights and remedies available for infringement, but it might not be a breach of contract. Selling patented products in violation of a covenant would be a breach of contract, giving rise (perhaps) to termination rights and damages for breach, but it might not be an infringement. Including the limitation in both places would help to ensure that the licensor would have recourse for both infringement and breach of contract if licensee were to sell patented products outside of the industry.

There is a difference between something in the license and something in the agreement. Moving a provision from the license to another part of the contract may not always give you the same result. This is the case for the types of remedies available. If you breach a license in a contract, you can get infringement remedies, not just contract remedies. For instance, if a patent license is limited to “sell in California.” Then using the intellectual property in Utah is not breach of contract, it’s infringement. In that case, you are not limited to contractual remedies.

As it impacts “nonassignable,” you have to ask the question: is there any way that the license could continue without the agreement itself. Unlike patents and copyrights, this seems like an unlikely situation for a trademark since use of a trademark is usually heavily restricted by the contract itself (rights to inspect, etc.) because of the nature of trademark law. In this case, the license should be limited to compliance with the agreement.

As for how to properly limit a license, the recent copyright case of Jacobsen v. Katzer (http://www.cafc.uscourts.gov/opinions/08-1001.pdf) is instructive. In that case, the Fed. Cir. drew a very important distinction that changed the remedies available to the plaintiff in a copyright dispute from contractual (which is what the district court held) to copyright infringement. The lesson is that the license itself imposed a limits on the scope of the license. There may be similar trademark cases, but I don’t have them in front of me.

In the case of a trademark license, it may be as simple to simply condition the grant on compliance with the agreement itself.

1. An IP licence is a contractual permission to do something which would otherwise infringe the IP. It should not be regarded as a property right. Therefore it does not have a life separate from the contract and there is no need to refer to assignment of the licence separately from assignment of the contract.

2. If any analogy can be drawn with real property, is not with deeds of transfer (which might be considered analogous to IP assignments), but rather with leases or, more probably, licences to occupy property. But this analogy has limited usefulness, in view of the encrustation of centuries of case law, which has created wierd and wonderful property and quasi-property rights for lessees, mortgagees and others.

3. Yes, transferees of real property may have rights or obligations that are independent of any underlying contract, but that is a historical peculiarity of land law that is not relevant to IP assignees, and certainly not relevant to IP licensees.

Therefore, IP licences have much less need of magic wording than real property transfers.

I see a license grant being a special case of legal drafting. I think the proper analogy is not between a license and a house; the proper analogy is between a license and a real property deed.

A contract of sale in a real property transaction commits the parties to buy and sell the real property. The actual transfer of title is reflected in the deed. The ownership rights stated in the deed and implied by background law say what the owner can do with the house.

Likewise, a contract commits the parties to grant and receive the license. The actual license can be stated separately (which I have seen in numerous instances, such as bulk license purchases) or integrated with the contract (which I see much more often). The license rights stated in the license and implied by background law say what the licensee can do with the subject matter of the license.

To me, that implies that a license grant is a special kind of legal drafting, mainly because you have to be aware of the background law at stake, and know where the substantive law has taken a “magic words” approach. Not being a real estate lawyer, I can’t say whether it is true that there are magic words in real estate transactions, but there certainly seem to be based on the few real estate transactions I have seen. I know that there are magic words in intellectual property licenses. For example a failure to recite that you are licensing both the trademarks “and the goodwill associated with them” can cause your trademarks to expire.

Now, all that being said, the way I would want to actually draft a separate trademark license would be to call it “Trademark License” in the title, then say “The licensee may use the trademarks (and the goodwill associated with them) to [do whatever it is]. This license lasts until either party terminates it as permitted below.” Etc. After all, a license is only a subset of general drafting, so I would only deviate where needed to handle issues raised in the background law.

Chris Lemens