License Agreement Checklist (Patent, Technology and Software Licenses Conveying Rights in Board Intellectual Property)

You've gotten off to the best start possible. Using a standard agreement, by itself, will do more to assure that you have a sound document than anything else you might do. It's required by the Regental Policy entitled Intellectual Property License Agreements with Private Entities found here.

The Regental Policy entitled Intellectual Property License Agreements with Private Entities requires the use of standard forms of agreement as starting points for every transaction. All deals involve some changes to our standard templates. Some involve changes that are not very favorable, but that are acceptable given all the facts about the particular transaction. If a previously-negotiated agreement is used (which we highly discourage) as the starting point for a new deal, it may be unnecessarily complicated by the previous licensee's concerns and could put us at a disadvantage by starting us out at a position from which we may have to retreat even further. For example, one company may insist on warranties that we do not generally give, but that we are willing to agree to in one particular situation. We do not, however, wish to give these warranties at the start of another deal.

Even worse, however, than starting with someone else's fully negotiated document is inviting your licensee to prepare the first draft of a license agreement. This will put your institution at considerable disadvantage and prolong the negotiation and review process by making it much harder for you to assure that the safeguards built into our standard template are included in the license agreement. We have all the leverage we need as the owner of the intellectual property to require that our standard template be the starting point. You should not give up this advantage.

Be very careful to search for and replace any defined terms in borrowed clauses with the proper defined terms in your new contract. Look for correlates, such as company names or variant terms for University; but, also look for completely irrelevant terms that may have been defined in the pre-existing contract but are not needed in the one you are working on now.

Good -- Keep as is.

Review your contract's defined terms to be sure that you have used them properly in the new clause(s). For example, if you have a defined term called "Research Program" that means "the Inventor's research sponsored by Licensee," you have already captured this idea in the defined term. Once you have defined it, you should not spell it out in detail again.

Also, avoid repetition. Do not say the same thing twice or address the same issue in two places in different ways.

Good -- Keep as is.

Remove all irrelevant clauses. For example, licensees sometimes want us to make representations and warranties that only corporations make. If a licensee includes such clauses in its markup of our standard template, remove them. Similarly, if your deal has no equity aspects, delete the "Equity" provision from our standard template; or, if there will be no confidential information conveyed, delete the provision relating to confidentiality.

Good -- Keep as is.

Remember that every time you change a paragraph number, you must check and adjust all of your internal paragraph cross references so that they reference the correct paragraphs.

Good -- Keep as is.

It is a very good idea to have someone else in your office review a late draft. A second set of eyes will often catch mistakes you may have missed.

Even more importantly, a second reader will be able to point out clauses that are hard to understand--clauses that you may understand, but without your special knowledge of the deal, the words are confusing. If a reader unacquainted with the deal cannot read a paragraph once and describe correctly what the parties' obligations are, the paragraph needs more work.

Good -- Keep as is.

Avoid repetition. Do not say the same thing twice or address the same issue in two different places. Saying the same thing over and over usually indicates one or more of the following:

• You may need a defined term to capture an idea that you must use or refer to often. Clearly define the necessary term and then use it throughout the contract to avoid repeating lengthy descriptions.
• Perhaps your contract could be better organized. When bits and pieces get added here and there by both parties, a contract can become disorganized. If this is the case, give some thought to the matters that each paragraph addresses and group paragraphs together according to their substance. It's easier to see contradiction in the repetitions this way and to rewrite paragraphs to eliminate it.
• The parties may not really agree about a term, especially if a party's obligations are described slightly differently in two or more places. This is especially dangerous because it suggests that if there is a falling out, there will be plenty of ammunition to dispute what the obligations actually were.
• If both parties appear to be addressing the same issue in their own ways, ask the licensee how its version of the paragraph differs from ours and suggest that one be edited to incorporate any significant differences and that the other be deleted.

In all cases, recognize that contractual obligations need to be clear and easy to understand. Repetition, especially with slight variations each time creates ambiguity, at best, and contradiction, at worst, and should be eliminated.

Good -- Keep as is.

Recitals come at the beginning of the contract for a reason: They set the stage and tell the story of your deal. Our standard recitals tell the story of a standard deal. If your transaction is unusual--that is, if it has unusual aspects or a complex history or interesting twists of some kind--use recitals to tell the story accurately from the beginning. Don't let important facts suddenly appear in a paragraph somewhere in the middle of the contract!

Imagine that someone totally unfamiliar with the deal needs to read the agreement three years from now and understand it, in order to sort out some dispute. Many aspects of a complex agreement will make no sense, without reference to the unusual facts of the deal. If important facts will help that person to understand, they should be included in the recitals.

On the other hand, do not include deal terms (party obligations) in recitals. Recitals are reserved exclusively for an agreed-upon statement of the facts that constitute the reason the parties are doing the deal and what the basic thrust of the deal will be.

Good -- Keep as is.

Our standard warranties regarding title and rights to grant the license are very important to the licensee. We are almost always able to confidently make these warranties; however, if there is any question about our rights, those questions should be accurately reflected in the "Warranty: Superior Rights Section." For example, we may be joint owners with another institution, or there may be allegations of infringement. Anything like this should be fully disclosed. Never warrant that you know or believe something to be true, unless you have diligently performed the research that assures your statement is completely true ("due diligence").

Good -- Keep as is.

Please confer with the Office of General Counsel regarding procedural aspects of equity ownership and business participation. All documents must be approved by outside counsel.

Good -- Keep as is.

Making representations and warranties is one of the most serious undertakings you will document. A representation and warranty provides the other party with your promise that what it says is absolutely, and without qualification, true and correct. You must be able to understand exactly what you are promising (i.e., the language must be clear and unambiguous), and you must be sure without any doubt that it is true. If you are not comfortable with either of these necessary conditions, do not agree to the warranty. Modify it so that it is clear, unambiguous and completely true. Never warrant that you know or believe something to be true, unless you have diligently performed the research that assures your statement is completely true ("due diligence").

This is one of the places in the agreement where licensees often insert irrelevant clauses. For example, warranties about whether we are corporations in good standing to do business in our state are obviously lifted from an agreement with an entity other than a state university and should be removed.

Good -- Keep as is.

Along with warranties, indemnities are the most serious of our undertakings. An indemnity contains our promise to pay for any expenses the licensee incurs if we breach our warranties. So, first of all, make sure your warranties are air-tight. Second, limit Board obligations to indemnify "to the extent authorized by the Constitution and laws of the State of Texas." Third, review the indemnification's heart--its description of what triggers our obligations--and be sure it's no broader than breach of warranty (i.e., our breach of our warranties is all that we are agreeing to indemnify them for).

Good -- Keep as is.

Substantial changes to the Definitions Section will require very careful drafting, re-drafting and review, as this is another of the critical sections of the license agreement. Please feel free to consult with the Office of General Counsel regarding the effects of your changes.

Substantial changes to the License Grant will require very careful drafting, re-drafting and review, as this is another of the critical sections of the license agreement. Please feel free to consult with the Office of General Counsel regarding the effects of your changes.

The Regental Policy entitled Intellectual Property License Agreements with Private Entities requires that individuals involved in the negotiation of license agreements begin their negotiations with our standard agreements and try always to retain or utilize the significant aspects of those agreements. This list constitutes a short-hand reference to these features of the Guidelines. OGC encourages you to review the Guidelines periodically.

• Reversion of rights for failure to commercialize
• Reimbursement for all patent expenses
• Full indemnification for U.T. System and component institution
• Right to publish scientific findings
• Obligation to maintain confidentiality of unpatented technology
• Right to share in sublicensee revenues

The Guidelines recognize that sometimes there are compelling reasons to forego some protections. Please include in your transmittal letter to your Chief Executive Officer or designee any areas of your agreement that deviate from the Guidelines, and briefly explain the circumstances that justify his or her approval of the agreement on behalf of the Board of Regents, despite those deviations.

Good -- Keep as is.

To the extent you are able, use the OGC License Agreement Checklist and integrate its recommendations into your contract early in the process. Everyone is understandably put off by significant new revisions near the end of the negotiation process. We recommend using the Checklist before you complete the draft that you plan to send to the licensee for review, and again, after the licensee makes changes, especially if they are significant.

For general tips on how to use this Checklist, please see License Agreement Review Procedures. It is our hope that you will become very familiar with these recommendations and that you will be able to draft documents and review licensee revisions with them in mind, integrating the recommendations into the process rather than tacking them on at the end. Producing a good document quickly should not be a contradiction in terms.

Many times we are reluctant to "rock the boat" with a licensee with whom we have a fragile relationship. Ironically, such fragile relationships present one of the most compelling reasons to draft a tight document. Relationships that can barely stand the strain of normal negotiation may well break under some other stress of ongoing obligations. At that point, the care and attention given to drafting a clear, unambiguous, tight document will do more to protect our interests than will all the lawyers handling the litigation.

Of course, revisions suggested early in the process are always better received than those very same suggestions made near the end, regardless of the status of the relationship. Fragile relationships will benefit immensely from your integrating the recommendations of the Checklist as early as possible in the negotiation process.

Faculty inventors may become impatient when negotiations over contract terms are delaying important research or interfering with licensee business operations. This is entirely understandable.

The best way to avoid these reactions is to be as responsive to inventor concerns and timetables as possible; keep inventors fully informed of all the steps in the process so that they have a better idea of where along the continuum from start to finish the transaction is; and, if particular terms become sticking points, be able to explain the importance of the term to our interests. Many legal terms such as "warranties" and "indemnities" are not so obviously important to others as we know they are.

If you have a reluctant licensee, you will have little leverage. You may only have one or two opportunities to shape the document. This does not mean, however, that you will not be able to modify your reluctant licensee's revisions. After reviewing the licensee's revisions with the Checklist, you may wish to prioritize the recommendations so that you have a clear notion of what the most important ones are. Please feel free to consult with the Office of General Counsel about priorities.

Things change. Please take advantage of any new licensing opportunity to utilize the latest drafts of our standards and implement current expectations. As W.O. Shultz says, "error is not precedent." Just because you did it a certain way once does not mean you are forever condemned to reuse that agreement and repeat errors or ambiguities (or worse).

There are unique circumstances surrounding every transaction. Those unique circumstances may justify approval of an agreement that fails to meet normal expectations. But, such prior approval in and of itself should never be enough to justify continuing use of an agreement that could be substantially improved.

It is a general rule of good contracting and a requirement under Regental Policy that we should always start with our blank standard agreement, even with continuing licensees. This keeps us from routinely committing to the same terms that may no longer be appropriate or desirable, and allows us to take advantage of thoughtful changes that we have made to our standards and our expectations.