Intellectual Property Licence Agreement – How do I draft the termination clause?

When drafting your Intellectual Property Licence Agreement it is important to draft a detailed and thorough termination clause. Whether you are the licensor (the person who owns the intellectual property) or the licensee (the person who is using the intellectual property), it is important that you have an appropriate process to terminate the agreement.

You should include that the parties may terminate the agreement by mutual agreement, by providing notice (usually 1 month) in writing. This allows both parties the opportunity to bring the agreement to an end even if neither party is at fault.

Dispute Resolution

You may like to make termination subject to the parties first entering into a dispute resolution process. Your dispute resolution process should set out how breaches can be remedied and should provide the opportunity to seek another means of resolving the dispute other than termination of the Intellectual Property Licence Agreement or legal action.

A dispute resolution process should set out how each party can notify each other of the dispute, and what they should notify the other party of including, what they would like undertaken to resolve the dispute. You should include a clause that the parties meet in good faith to resolve the dispute. Usually this process will have a timeframe, for example the parties must meet within 30 days of being notified about the issue to resolve the dispute. Or if one of the parties has breached the Intellectual Property Licence Agreement they may have the opportunity to remedy the breach within 90 days before the termination clause comes into effect.

The second step of the dispute resolution process sets out how a mediator can be appointed if discussions do not resolve the situation. It is recommend that the parties select an independent organisation for example the Law Society for their State or territory who can appoint a mediator. The mediator will decide the time and place for mediation and each party must make reasonable efforts to cooperate in the process.

As a licensor you should ensure that you are able to terminate the terms immediately in certain situations, for example, if you consider that the working relationship with the licensee has broken down or for any other reason outside of your control, which means you can no longer perform the work required under the agreement, or if the licensee fails to pay the licence fees.  As a licensee, you should understand what situations allow the licensor to immediately terminate the Intellectual Property Licence Agreement.

Checking Terms and the Agreement

As a licensor you should ensure that on termination of the Intellectual Property Licence Agreement the licensee agrees that any fees or payments made are not refundable to them, and that they are required to pay all fees for the licence that are due up to termination.

You should also include a number of obligations that the licensee must follow on termination:

• they will immediately stop exercising any licensing rights granted to them by you under the Intellectual Property Licence Agreement;
• they will return or delete or destroy (whichever is possible), your intellectual property (both licensed and unlicensed);
• they will return documents containing or relating to your intellectual property; and
• ensure that they terminate any sub-licences.

Conclusion

If you would like us to draft an Intellectual Property Licence Agreement for your business or if you require more information about intellectual property rights, contact us at LegalVision on 1300 544 755 and speak with one of our experienced IP Lawyers today.