Article discussing means of standardizing license agreements.

1. Standardizing Patent License Agreements: A Method of
Evaluating What May Be Standardized
By Lynda Covello, LL.M., CEO of LPC Consulting International and Chair, LESI Standard Licensing Agreements
Committee & David Newman, Shareholder, Greenberg Traurig LLP and Member of the Patents Working Group,
LESI Standard Licensing Agreements Committee
Complementing the International Roundtable Session at the 2010 LES USA/Canada Annual Meeting in Chicago
In effecting the standardization of patent license agreements, the purpose and necessary conditions underlying
standardization should first be determined. The contract provisions can then be classified and separated as essential
or non-essential to facilitate the standardization process. Once separated, the writer can focus on those elements of
essential clauses that can be standardized and those that may vary from agreement to agreement. A disciplined
process enables the analysis of such elements and reduces the level of confusion and variability. The use of defined
terms, the content of which may vary, enables the architecture of agreements to be finite and predictable, while the
specific elements remain adaptable to each transaction.
I. Purpose of Standardization for Patent Licenses
There are many reasons to encourage the standardization of patent license agreements: reducing transaction cost
and time; enabling increased transaction volume; enhancing the primary market for patent transactions; enabling the
liquidity of patent assets; facilitating the corporate use of patent assets and generating increased revenues from such
assets. Standardization for any of these reasons can increase the return on investment in the development of IP
assets.
II. Criteria for Standardization
While standardization may occur at different levels, there are three key levels where this typically happens. At the
entity-level, a corporation or other entity standardizes its own agreement forms. Within an industry, a consensus may
form around standard forms, such as in software licenses and copyright collectives. Finally standardization may occur
at the jurisdictional level, where agreement terms are standardized by legislative fiat, i.e., the UCC, consumer
protection legislation, etc.
At the first two levels, standardization may be formal or informal. At all three levels, the conditions that enable
agreements to be standardized are the same. First, there must be sufficient experience with the particular type of
transaction concerned. Second, there has to be sufficient volume to provide economies of scale in exerting the effort
required to achieve standardization. Finally, there needs to be a consensus on common elements, issues and
provisions required for the transaction-type as well as on the risks presented by such transactions and a reasonable
allocation or management of such risks.
III. Separating Essential Clauses from Non-Essential Clauses
A first step towards standardization must be the identification of those provisions which are essential to every patent
license, and their separation from non-essential provisions. This must be done from a functional perspective. Which
provisions are necessary in order for a patent license to exist in a valid and functional manner? Non-essential
provisions may be very important to the administration of the contract, the management of the relationship between
the parties and the determination of disputes which may arise during or after the term.
A. Essential Clauses

2. In order for a patent license to be valid and functional, it must contain the basic elements of a contract for the relevant
jurisdiction (typically offer, acceptance, meeting of the minds, consideration, etc.), as well as provisions dealing with
the following issues:
1. Licensed Subject Matter: A clear definition of exactly what is licensed, whether a product, technology or process,
and whether it relates to a single patent, a patent family, a portfolio of patents, foreign counterparts, applications,
continuations, related or derivative patents, improvements or subsequent patents. Relevant know-how may also be
included here.
2. License Grant: detailing the scope and nature of the license (i.e, exclusive or not, field-exclusive, perpetual,
irrevocable, royalty-bearing, permitted use, make, use, sell, sublicense, etc.)
3. Field of Use or Permitted Use (where appropriate).
3. Territory
4. License Rate (i.e., license fees, royalties, up-front payments, milestones, including the basis for such payments,
such as Net Sales, Net Revenues, completion criteria for milestones, etc.)
5. Term
6. Termination
7. Notice
9. Licensed Patent Maintenance, Enforcement & Defense
B. Some Non-Essential (but Important) Clauses
1. Relationship Management
2. Change Management
3. Effects of Termination
4. Dispute Resolution (including ADR)
5. Governing Law: patents themselves are governed by the law of the jurisdiction that issued them, but contracts
have different criteria for determination of which law governs in the case of multi-jurisdictional elements, which is
often the case with patent and other IP-related transactions. A court may determine which law should govern the
contract, but it can make things much simpler if the parties specify.
6. Improvements
7. Representations and Warranties
8. Limitations of Liability
9. Indemnities
10. Patent Marking
IV. Separating Standardizable Clauses from Non-Standardizable Clauses
Some of the Essential Clauses described above can be standardized in order to be used in a standardized license.
We believe standardized licenses having such Essential Clauses, can be used across a wide variety of technologies
and fields of use. For example, a non-exclusive license may be standardized using such Essential clauses by merely
modifying the definition section, party names and the Field Specific Clauses, as discussed below. Many of the Non-
Essential Clauses may also be standardized.
A. Standardizable Clauses
An example of a standardizable clause which may be used for a wide range of non-exclusive licenses is a uniform
License Grant clause as follows:
License Grant. Subject to the terms and conditions of this Patent License, after the Effective Date, Licensor hereby
grants Licensee a non-exclusive, non-transferable, non-sublicensable, world-wide right and license under the
Licensed Patent(s) to make, have made, use, have used, sell, have sold, offer to sell, have offered for sale, export,
have exported, import, and have imported any Royalty Bearing Products within the Field of Use.
By use of terms such as Licensed Patent(s) and Royalty Bearing Products, the License Grant clause can be
standardized and only the Definition section needs to be customized. In this example, the specific Licensed Patent(s),
the Royalty Bearing Products and the Field of Use would be the defined terms. By use of such standardized clauses,
the drafting, negotiating, monitoring and enforcing functions can be greatly minimized and resources saved.

3. B. Field Specific Clauses
Some license clauses are essential to the license, but are not readily standardized across a wide range of
technologies or fields of use and must be more variable - based on technology type or field of use.. Examples of Field
Specific Clauses include the Field of Use Clause, the Licensed Product Clause and the License Rate Clause. In
order to make the license drafting process more uniform and dependable it is useful to separate the clauses that may
be standardized from those that require customization based on technology or field of use.
C. Uniformity Among Field Specific Clauses by Technology Category
Once a technology is identified, the Field Specific Clauses may be prepared so that they can be uniformly applied
across the same technology areas. So in most situations a license attorney need only be engaged to modify the
Field Specific Clauses for each technology area and negotiations regarding the standardized license may be limited
to the Field Specific Clauses and some of the Definitions.
V. Conclusion
Although there will always be a need for specific attention to deal terms especially in complex transactions, there are
many situations in which the underlying criteria for standardization of patent licenses – volume, experience and
consensus on key issues -- exist. By using this framework, standardization of patent licenses can be facilitated in
many instances beginning with patent pools, standards groups, university settings and license auctions, but
extending far beyond that as well.
By categorizing different parts of a license agreement as Essential Clauses, non-Essential Clauses and Field Specific
clauses, a more consistent methodology can be employed for drafting and negotiating license agreements. Such a
process can be useful in large licensing departments or smaller R & D companies for managing quality control and
reducing legal costs. For example, if the licensing department policy is that the Essential clauses will not be
negotiated (except for the Field Specific Clauses), a great deal of resources and legal fees may be saved. Where a
standard group or trade group agrees on standardization of the Essential Clauses, the license negotiation and
drafting process can be greatly streamlined, enabling the use of more patented technology by more entities, thus
stimulating economic growth. There is no need to wait for this large-scale acceptance, however, as companies and
other patent owners can begin by creating reasonable and balanced standard patent license agreements for their
use. LES meetings and in particular the LESI Standard Licensing Agreements Committee, provide valuable
opportunities for patent owners and their advisors to discuss and agree to fair and reasonable standard agreement
terms.