Common IP licensing agreements disputes
1) IP rights definition and Scope of Licence
Disputes often arise when the IP License Agreement has not specifically defined the IP rights for the licence and the scope of the licence.
This would create obstacles and difficulties when the licensor try to enforce the license agreement against the licensee who is in breach of the agreement.
One should seek legal advice on the drafting of IP license agreement to reduce the risk of disputes.
2) Royalty payment
Disputes often arise:
a) when licensee has defaulted in making royalty payment to the licensor
b) the basis for the calculation of the outstanding royalty payment is unclear
To reduce the risks for disputes, the IP license agreement should clearly stipulate the following for the calculation of royalty payment:
i) whether royalties should be a fixed sum or calculated based on sales turnover, gross profits or net profits;
ii) method and formula for determining the calculation;
iii) for joint ventures case, the sharing of the royalty payment between the investor and operator of the business.
Recovery of outstanding royalties
In case the licensee has failed to pay the royalty payment in accordance with the license agreement, the licensor may take out legal proceedings against the licensee for recovery of the outstanding royalty payment, loss and damage suffered, together with interests.
Depending on the disputes resolution clause in the license agreement, the claim can be taken out through the court or by way of arbitration.
The process to obtain a court judgment or arbitral award in these civil claims may take time, depending on uncertain factors such as the grounds of defence, the attitude of the other party, etc. Yet, once the judgment or award is successfully obtained, it can then be used to enforce against the other party’s assets.
Other possible breaches committed by licensee
a) Non-competition clause: The licensee has set up a competing entity to sell similar products or services or to divert business based on the IP rights granted under the licensing agreement
b) Joint venture disputes on the share usage of the IP rights and payment of royalty
c) Unauthorized operation and/or distribution of goods/services which infringes the IP rights by a licensee or third-party.
The licensor may consider taking out injunction proceedings to immediately stop the licensee from committing further breaches and/or to freeze the licensee’s assets as an interim measure.
For legal advice or services on IP licensing disputes, please contact CHOW & CHEUNG [Tel: +852 2856 3799 or Email: cac@ccsn.hk]
www.ccsn.hk
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