Intellectual Property Commercialization - Essay Example

Intellectual Property Commercialization CEO, MobileLink Kelly Davidson 10th April Review of Smart Phone License Agreement Preamble In the introductory part, the agreement states the name of the licensee as “MobleLink” instead of “MobileLink”. The impact of this error in expression is that the agreement may be null and void since the party mentioned as the licensee is different. The name should be corrected to represent the actual names of the company as they appear in the certificate of incorporation. The preamble adequately highlights the major aspects of the sales agreement with clarity such as the scope of the technology under consideration, territory of sales and use of trademarks1. Technology The definition of “Technology” in the agreement is very wide in the agreement. The technology aspect of the product covers any machine, product, apparatus, method, process, substance, composition of matter, or improvement thereof. This implies that any competing technology that may be even remotely related to the product is a potential breach of the contract. MobileLink is a distributor specializing in low-cost, small devices in South-East Asia and manufactures some of the devices itself. Given that the company offers some other products, there is possibility of a potential conflict of interest. The terms of the agreement imply that MobileLink should not trade in products that may be direct competitors to the IP Owner. The other aspect on technology is the issue of patents. No patents have been registered yet and three patents are pending in the United States, Japan and European Union. Therefore, there will be difficulty in ensuring there is no infringement of patent rights yet they have not been approved. As per the terms of this agreement, there might be legal grounds for the IP Owner to sue MobileLink in the future for patent infringements which might not have been registered as of the time of execution of the agreement. The agreement should be modified to specify that only registered patents will be considered incase an issue of infringement arises. The pending patents should await outcome before they can be quoted in the agreement2. Also, the scope of definition of technology should be narrowed to include only the elements that are unique to the IP Owner. This will provide sufficient leverage for MobileLink to trade on other related products. License Grant The license agreement is very clear that the licensee has the right to make, sell and distribute the product. Particularly important is the fact that the licensee has the right to service, repair and improve the products. This provides leverage for MobileLink to customize the product to suit the needs of the specific markets that it covers. To further gain from this business agreement, MobileLink should negotiate for an agreement that it retains rights to any improvements on the product. This way, the two companies will develop a synergetic relationship and MobileLink may sell the improvements to other licensees in the future. Since the product jurisdiction for Mobile Link is only in Southeast Asia, Australia, New Zealand and the Pacific, the agreement is mute on what happens once the improvements in products move outside the territory. The pertinent question is who owns the improvements once the client moves to a different territory. It is acknowledged that technology is never bound by geographical boundaries. Therefore, the agreement should be modified to reflect this reality and make provisions for rights ownership on any improvement in the product. Trade Secrets and Confidential Information The license agreement states that the licensee to keep all Confidential Information strictly secret and not to disclose it to any third party without IP Owners prior written permission, which IP Owner will not unreasonably withhold. There is an ambiguity on the nature of what grounds will constitute “reasonability” from the IP Owner’s perspective. MobileLink sometimes works with external partners in the manufacture of the products that it distributes. Therefore, it is prudent that the company should have the discretion of autonomously deciding on whom it may disclose any trade secrets as long as it does not infringe any patents of the IP Owner. According to the agreement, the IP Owner has the sole discretion of deciding whether MobileLink can use a third party to manufacture the product on their behalf3. This is likely to cause friction in the future because the IP Owner may refuse to give a written consent to authorize a third party to work on its products. The outcome may be catastrophic to MobileLink in terms of business operations. The agreement should be modified to allow MobileLink the liberty to outsource its manufacturing operations without any hindrance. Payments The agreement provides that at the execution of the agreement, the licensee shall pay upfront a sum of five hundred thousand dollars. Beginning with the third year of operation, the licensee is obligated to a minimum annual royalty of one million dollars and a running royalty of five percent of the net profits. The issue of payment of annual royalty of a million dollars per annum may have adverse impact on MobileLink. The payment is mandatory whether the company is making losses or not. Therefore, even if the product line may not become profitable, MobileLink will still have to fork out a million dollars to the IP Owner every year. In order to shield MobileLink from making unnecessary payments irrespective of the profitability of the product line, the agreement should be tailored to have royalty payments based purely on a percentage of the net profit. MobileLink can also negotiate for the initial payment of five hundred dollars to be paid in two installments to ease on capital spending4. Reporting and Audit The agreement states explicitly the no less than once every calendar quarter, Licensee shall send to IP Owner a complete calculation and report, certified by Licensees chief financial officer, of the following: all manufacture, sales, leases and other disposition of Products, all use of the Technology in commerce, all revenue received in connection therewith, all profit derived there from and the royalty due under this Agreement. This kind of reporting is very extensive and it would not be feasible for MobileLink to account adequately to meet this requirements. The company distributes other products as well and it would be a tough call to calculate the profitability of every single line of business in each quarter5. MobileLink should negotiate that provisional reports should be presented on a quarterly basis whilst the final calculations on profitability and revenues should be done at the end of the financial year. The aspect of auditing the product’s book of accounts is to be done by the IP Owners according to the agreement. This might not be in the best interests of MobileLink since the credibility of the IP Owner may be in question due to vested interests. In the spirit of accountability and transparency, the audit of the accounts should be done by an independent auditor and the costs of the service should be shared equally. The margin of error allowed in the agreement is less than ten percent, above which the licensee has to pay the shortfall and the costs of the audit examination. In order to avoid discrepancies in the royalty calculations, the agreement should specify the accounting standards to be followed in reporting. This will help to mitigate the differences that may arise due to the fact that accounting principles followed in the United States may be slightly different from the ones used in Australia where MobileLink is based. Third Party Infringement The agreement puts the onus of investigating third party infringements on the licensee. Further, the licensee thereafter shall, at Licensees expense, cooperate fully with IP Owner in prosecuting such infringement, including providing such evidence and testimony as IP Owner reasonably may request. The cost of legal processes might be very high and the licensee is bound to shoulder all the expenses that may arise due to infringement6. It would be appropriate and fair for both the IPO Owner and the licensee to share equally all the costs that may arise incase of third party infringement on the rights of the IP Owner. The other issue on the prosecution of infringement is on the legal jurisdiction under which the case will be placed. The issue is critical since the IP Owner is based in the USA, whilst MobileLink is based in Australia with operations in Australia, New Zealand, South-East Asia, and the Pacific Islands. Therefore, the agreement should define the legal jurisdiction under which any grievances or prosecution will be considered. This will go a long way to avoid the loopholes that may otherwise make it impossible for prosecution to take place. The agreement should also make a provision for arbitration processes. The cost of prosecution and court cases is very high and may have a negative impact on the public’s perception of the company. Therefore, it would make business sense for the agreement to specify the issues that can be referred for arbitration and the procedure for selecting an arbitrator. This will help to save money for both companies and also protect their reputations Term and Termination The agreement shall continue in force until terminated by mutual consent or by IP Owner due licensee’s default. Conditions for termination of agreement due to licensee’s default are fair and clear. Failure to report or make the requisite payments and revealing of trade secrets may lead to termination of contract. An advantage to the licensee is that the agreement does not indicate the possibility of prosecution due failure to pay the required royalties. However, the grounds for termination of contract from the licensee’s side are not clear. Therefore, MobileLink should push for a clause in the agreement that can outline the process by which it can terminate the agreement. Bibliography Bainbridge, D., 2010. Intellectual Property. 8th ed. New York. Pearson. Frier, B. & White, J., 2007. The Modern Law of Contracts. New York. Prentice Hall. Kenneth, A., 2005. A Manual of Style For Contract Drafting. New York. American Bar Association. Mulcahy, L. & Tillotson, J., 2004. Contract Law in Perspective. 4th ed. London. Routledge- Cavendish. Phyllis, H. & Frey, M., 2001. Essentials Of Contract Law. Albany, NY. Delmar Publishers. Vogenauer, S., 2008. Analysis of Contract Law. London. Oxford University Press. Read More