Enter to open, tab to navigate, enter to select
Intellectual Property License Agreement Transferability
Practical Law Legal Update 6-567-5046 (Approx. 4 pages)
Intellectual Property License Agreement Transferability
by Practical Law Intellectual Property & Technology
| Published on 20 May 2014 • USA (National/Federal) |
A discussion concerning the transferability of intellectual property license agreements, including contract transferability and IP license transferability default rules. This resource also includes information concerning licensor and licensee perspectives on assignability.
The transferability of intellectual property (IP) license agreements requires special consideration because the default rules differ from the treatment of many other agreements. In particular, a licensee's rights are generally not assignable unless the license agreement expressly permits assignment or the licensor otherwise consents.
Understanding whether a particular IP license is transferable is important because:
- Parties negotiating license agreements must consider clauses that are necessary to prohibit or permit the transfer of the agreement under various future circumstances.
- Buyers and sellers of companies must consider the effect a proposed transaction may have on existing agreements.
Licensor and Licensee Perspectives on Assignability
Licensors and licensees generally have competing perspectives on the assignability of each party's rights under a license agreement. The license may be a valuable asset and each party wants to retain the flexibility to assign it to a third party or an affiliate in connection with a corporate reorganization.
A licensor typically opposes free transferability of license rights by licensees for the following reasons:
- It chose the licensee for its specific characteristics.
- The terms of the license were based on the particular licensee's operations.
- It does not want the licensed IP to end up in the hands of its competitor or the licensee's bankruptcy trustee.
Licensees generally do not have equivalent concerns over the licensor's assignment of its rights under a simple IP license agreement. A successor owner of the licensed IP can presumably grant the same license on the same terms. However, a licensee may have a legitimate objection to the licensor's transfer of a license agreement, for example:
- If the agreement includes obligations to provide services that the original licensor is uniquely qualified to provide.
- Where the transferee is the licensee's competitor. In that case, the licensee may have concerns about perceived relationship issues, loss of competitive advantages or the transferee's commitment to sustaining the IP.
Contract Transferability Default Rules
Under basic contract law, a contract that is silent on assignment is generally freely assignable unless either:
- A statute or public policy provides otherwise.
- There are material adverse consequences to the non-assigning party.
IP License Transferability Default Rules
The default rules for IP license agreements differ from the treatment of many other contracts. Where an IP license is silent on assignability by the licensor, the licensor can generally assign its rights, subject to the same considerations as other types of contracts. However, where an IP license is silent on assignability by the licensee, the majority of courts have found that a licensee's rights are presumed not assignable without the licensor's express consent.
For more information on assignability, see Practice Note, IP Licenses: Restrictions on Assignment and Change of Control by Elaine D. Ziff and John G. Deming, Skadden, Arps, Slate, Meagher & Flom LLP, from which this Legal Update has been excerpted.