“No Implied Licenses”? No Thanks

Consider the following:

No Implied Licenses. Except as expressly set forth in this Agreement, neither Party grants any license under its intellectual property rights to the other Party.

First, let consider what an implied license is. Here’s what Melvin F. Jager, Licensing Law Handbook § 1:25 (2015) has to say (citation omitted):

Under this implied license theory, the unrestricted sale of a patented device by the patent owner carries with it an implied license to use or sell the device without further restriction. Because of the existence of the implied license, the customer, for example, who purchases the patented device under such circumstances is not liable for direct infringement, so there can be no contributory or induced infringement. For an implied license, there must be no other noninfringing uses for the device and the circumstances must plainly indicate that a license should be inferred.

There’s also this from 69 C.J.S. Patents § 465 (citations omitted):

Although most patent licenses are express, a license may also be implied to enforce the contract obligations of the patent holder and recognize the legal rights of aggrieved parties. In order to establish an implied license to use patented technology, the circumstances of the sale must plainly indicate that the grant of a license should be inferred. An implied license merely signifies a patentee’s waiver of the statutory right to exclude others from making, using, or selling the patented invention.

Implied license analysis looks for an affirmative grant of consent or permission to make, use, or sell. However, in some circumstances, the entire course of conduct between a patent owner and an accused infringer may create an implied license. In some jurisdictions, the finding of an implied license to use a patented device rests upon the doctrine of equitable estoppel, and thus, an alleged infringer who claims an implied license must have committed itself to act and must indeed have acted, as a direct consequence of the patent owner’s conduct. A license will not be implied where an express contract exists.

I’m going to leave it at that, as things quickly get complicated.

Instead, I simply want to suggest that a no-implied-licenses provision isn’t worth the space it occupies in a contract.

I’ve written plenty about how drafters attempt to use rote boilerplate to constrain a court’s freedom of interpretation. (I just invented that phrase—don’t hold me to it!) For example, there are those provisions that state that a given principle of interpretation doesn’t apply (see this post). There’s also the recital of consideration, which seeks to avoid any discussion of whether the contract was in fact supported by consideration (see this article). I could go on. Such provisions are unpromising.

A no-implied-licenses provision falls into this category. It seeks to say, “Ignore the circumstances! Things are not what they seem!” It would be one thing if those who include no-implied-licenses provisions in their contracts do so after thoroughly considering the matter, but I think it’s a safe bet that that’s not the case. No-implied-licenses provisions are rote boilerplate, and as such courts are entitled to ignore them.

I ran my notions by Pam Chestek—she of the Property, intangible blog—and here’s part of her response on Twitter:

Well, Pam, I haven’t found a single instance of a court’s having paid attention to a no-implied-licenses provision. The only caselaw reference I found was in Endo Pharm. Inc. v. Actavis, Inc., 746 F.3d 1371, 1377 (Fed. Cir. 2014), in which the court noted that “Appellees argue that the ‘No Implied Rights’ language in the agreements is not dispositive because estoppel ‘must override any such provision,'” then went on to hold that there was no implied license, but without relying on the no-implied-licenses provision.

One could nevertheless elect to retain a no-implied-licenses provision, on the off chance that someone might pay attention to it. But you can use that as a basis for including all sorts of stuff, and pretty soon you have a bloated contract.

What you include in a contract involves a cost-benefit analysis. Because no-implied-licenses provisions seek to have copy-and-paste boilerplate trump deal reality, which is often messy, they are unpromising. If a party conducts itself in a way that would lead a court to include that an implied license is in order, I see no reason why that party should be allowed to rely on boilerplate to escape the implications of its conduct.

So because no-implied-licenses provisions seek to have zero-thought boilerplate trump deal reality, I say the heck with them.

I’m wary about wading into patent stuff, as I’m deeply uninformed on the subject. But the language of patent license agreements isn’t immune from the mechanics of contract language generally, so I’m willing to get up on my soapbox. But I’m prepared for rotten tomatoes to come my way.

A closing thought: Would no-implied-licenses provisions make more sense if they used language of intention? (The parties do not intend to grant …) In other words, is an implied license something that becomes apparent in the course of dealing after a license agreement has been signed?

[Updated 13 February 2016: Mark Anderson has chimed in with a post of his own on this topic, here.]

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.