If a contract provision isn’t the focus of the deal, there’s a good chance people won’t have given it much thought, so there’s a good chance that it doesn’t make sense.
Consider the notion of licensee liability for a sublicensee’s misconduct. Straightforward, right? But how do you express it? I scattered some roach bait traps on EDGAR and looked at (and then cleaned up) what crawled in.
Here’s one attempt:
The Licensee will be liable to the Licensor for all acts and omissions of a sublicensee.
It’s overbroad: acts and omissions that relate exclusively to the business arrangement between the licensee and a sublicensee would be irrelevant to the licensor.
Here’s another attempt:
The Licensee will remain liable for performance of a sublicensee in accordance with this agreement.
That doesn’t make sense: a sublicensee would perform under the sublicense, not the license. It’s not stated what the nexus would be between sublicensee performance and licensee liability under the license.
Let’s try again:
The Licensee will be liable for any act or omission of a sublicensee that is a breach of any of the Licensee’s obligations under this agreement as though it were a breach by the Licensee.
Same problem: there’s no basis for saying that conduct by a sublicensee under the sublicense will constitute breach by the licensee under the license. Adding “as though it were a breach by the Licensee” doesn’t fix that.
Then there’s this:
The Licensee will be liable for any action or omission by a sublicensee that would, if it were an action or omission of the Licensee, have been a breach of this agreement.
That’s better, but it’s not perfect. For example, if the license says that a sublicensee may not sublicense but a sublicensee sublicenses anyway, it would be a bit awkward to express licensee liability by assuming that it was the licensee that had sublicensed: under the license, the licensee can sublicense.
So here’s my take:
The Licensee will be liable for sublicensee conduct that is prohibited under this agreement and sublicensee conduct that would have constituted breach of this agreement if it had been engaged in by the Licensee.
Ken:
I think you have the same kind of issue in confidentiality agreements, when the agreement permits the recipient to disclose to others, for whom it is liable.
Chris
Yes, except that the relationship is perhaps a bit different, in that with a sublicense the licensee is acting as a conduit in a way that a recipient of confidential information is not.
Since the sublicensee isn’t a party to ‘this agreement’, the agreement cannot prohibit any sublicensee conduct. So the Licensee will never be liable to the Licensor for sublicensee conduct ‘prohibited under this agreement’.
Also, a licensee not authorized to allow sublicensees to grant further-tier licences cannot do so; any purported grant of any right to issue further-tier licences would be void. (Analogy: no-assignment clauses that make ‘purported’ assignments a breach — there’s no point making ‘unauthorized assignments’ a contract breach because they’re impossible.)
So perhaps the following is what’s wanted:
‘The Licensee will be liable to the Licensor for any Sublicensee’s conduct (1) under any Sublicence provision unauthorized by this agreement and (2) as if the conduct had been the Licensor’s’. (31 words.)
The contract must define ‘Sublicence’ and ‘Sublicensee’ to catch every descending tier.
As always, I could be wrong, but I’m always Wright.