Nothing is more irritating than when I hear someone say that the licensing of intellectual property is simple or “easy.” It is more than using a “form” for a simple contract — after 25 years of law practice, I have found that it is more of an art than most give credit for, and fraught with traps for the unwary. The person making such a statement definitely qualifies as one of the “unwary,” and one of the more complicated traps involves the licensing of proprietary information and “know-how.” Most commonly seen in the context of patent licenses (where initial and ongoing disclosures of such proprietary information and know-how may be necessary to best practice the invention set forth in the licensed patent(s)), such disclosures are not limited to them. More importantly, the dance between what should and should not be exposed involving proprietary information and know-how should never, never, be under-estimated.
As a threshold matter, it is important to understand what we mean by “proprietary information” and “how-how.” For all intents and purposes, “proprietary information” is information that is not public knowledge. In other words, it is confidential information of the holder. Such information can involve business information (for example, customer lists and financial information), technical information (for example, research and development data and software source code), or other non-public information of the holder that it wishes to keep confidential. “Know-how,” on the other hand, broadly involves “any industrial information and technique likely to assist in the manufacture or processing of goods or materials.” In other words, “know-how” involves something more within the sphere of “proprietary information” — it is expertise, skill, and/or other body of knowledge that is not generally known that helps in the commercialization of products or the provision of services. In fact, such know-how can be manifested in tangible goods (such as blueprints, formulas and specifications) or intangibles (such as manufacturing techniques, quality control processes and testing methods) that are not generally known.
Given the foregoing, whether such proprietary information and know-how actually qualifies as proprietary information and know-how cannot be overlooked. Hopefully, your company (or client) has taken the steps to discuss the concepts with qualified intellectual property counsel for a determination as to whether such information qualifies as patentable subject matter at the outset, that is, before any disclosures to third parties. This is a threshold step that is essential in determining what not only qualifies as proprietary information and know-how, but whether such information can be (or should be) protected under patents, as trade secrets or under copyright. Ignoring this point can result in the disclosure of information that would otherwise provide a commercial advantage (and a potentially significant one at that) to the holder.
Let’s assume that the aforementioned discussions took place and that proprietary information and know-how exists. Before approaching the licensing of such proprietary information and know-how (either alone or in conjunction with other intellectual property), it is essential to understand the nature of such information in the context of the transaction so the licensing construct protects the interests of the holder. For example, a patent license may require the disclosure of specific proprietary information and know-how to properly commercialize the invention disclosed in the patent. Such disclosure, however, may need to go beyond an initial disclosure and require the holder to engage in subsequent, ongoing disclosures to do so (especially where the full commercialization of the patented technology depends upon variables and factors for which the holder continues to perform research and development). Such disclosures and ongoing development inevitably involve ownership issues that may not be simple to address and, in any event, cannot be ignored.
As you can see, there is far more to proprietary information and know-how than meets the eye. Here are three additional considerations that every holder of proprietary information and know-how should take into account when approaching a license of valuable proprietary information and know-how:
Definitions Absolutely Matter. It should go without saying that how you define “proprietary information” and “know-how” is critical for any license involving such information. Broadly cover the information intended to be disclosed under the license within the definition, but be concise enough to tailor the definition to the nature and extent of the intended disclosure. These definitions are critical to other provisions presented later in the license agreement, such as disclosure, confidentiality, and termination provisions — these definitions will guide context throughout the license agreement, so get them right!
Don’t Get Lulled By Confidential Information Provisions. It should also go without saying that when licensing proprietary information and know-how, you need to take steps to actually protect it outside of the other intellectual property licensed under the agreement. Rarely will standard confidentiality language cover proprietary information and know-how correctly in the context of the transaction. For example, standard confidentiality provisions will include exclusions from the definition of confidential information that may contradict the intent regarding proprietary information and know-how, or otherwise make interpretation ambiguous (which is bad not only for interpretation by the parties, but may support the introduction of parol evidence to clarify the intent of the parties in the event of litigation involving the license agreement). Further, other provisions (such as data security, equitable relief and effect of termination) should all be addressed for continuity with the intended purpose of the license agreement.
Differences Absolutely Matter. How the proprietary information and know-how is licensed in context with other intellectual property cannot be ignored. For example, patents have a statutory duration that acts as a limitation on the license term and commensurate royalties and fees. Any proprietary information and know-how, on the other hand, is not limited in duration, and can foreseeably have a separate term and royalty structure. Whether this is the case is determined on a case-by-case basis, and relies upon the nature of the competitive advantage provided by such information, at a minimum. The point here is that any proprietary information and know-how should not be presumed to be tied to any existing royalty and fee structure — if so, your company (or client) may actually be leaving money on the table.
This is not a comprehensive list, but the point is that license agreements involving proprietary information and know-how are never standard and should never be taken for granted. Remember: one size does not fit all when it comes to the licensing of proprietary information and know-how (and other intellectual property for that matter). Take the time to understand the nature of the information being licensed, its context within the deal, and plan/draft accordingly. If you don’t, your company (or client) may be licensing far more than they think, and worse, they won’t be getting paid full value for it.
Tom Kulik is an Intellectual Property & Information Technology Partner at the Dallas-based law firm of Scheef & Stone, LLP. In private practice for over 20 years, Tom is a sought-after technology lawyer who uses his industry experience as a former computer systems engineer to creatively counsel and help his clients navigate the complexities of law and technology in their business. News outlets reach out to Tom for his insight, and he has been quoted by national media organizations. Get in touch with Tom on Twitter (@LegalIntangibls) or Facebook (www.facebook.com/technologylawyer), or contact him directly at tom.kulik@solidcounsel.com.
When You License More Than You Think: 3 Considerations When Licensing Proprietary Information & Know-How curated from Above the Law
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