Licensing term sheet

Purpose of this licensing tool: To facilitate negotiation and conclusion of licences. By using the tool, you will ensure that all important issues are considered fully and dealt with. Links to articles discussing relevant concepts will assist you along the way.

Licensee’s details


Name of licensee (the person acquiring the licence):


Licensee is a:
Person
Company. If so, according to which country’s laws is the licensee registered?


Trust. If so, according to which country’s laws is the licensee registered?


Other. If so, describe entity (e.g. “a statutory body established in terms of the Higher Education Act 101 of 1997”):


Physical address of the licensee (Note: not postal address):


Licensor’s details


Name of licensor (the person giving the licence):


Licensor is a:
Person
Company. If so, according to which country’s laws is the licensor registered?


Trust. If so, according to which country’s laws is the licensor registered?


Other. If so, describe entity (e.g. “a statutory body established in terms of the Higher Education Act 101 of 1997”):


Physical address of the licensor (Note: not postal address):


Transfer pricing check
If the licensor and licensee:

  • are in different countries;
  • are “connected persons”, i.e. have common shareholding; and
  • the royalty rate is not market-related,

you may have a transfer pricing problem.

For more information, see “Beware those transfer pricing contraventions

Exchange Control check
If a South African licensee is required to pay royalties to a foreign licensor, Exchange Control approval is required.

If an Exchange Control application is required, who will assume the cost of submitting the application for Exchange Control approval?
Licensor

Licensee

For more information, see “Incoming licences” and “Extracts from Exchange Control Regs and Manual

Commencement date


From what date is the licence effective?
Date of law signature; or

Specify date:


Intellectual property (IP)


What forms of IP is being licensed?

PATENTS

Number Title Status (provisional / application / granted)

Tip: See our Patent Toolkit

DESIGNS

Number Title Status (application / granted)

Tip: See our Design Toolkit

TRADEMARKS

Number Mark Status (application / granted)

Tip: See our Trademark Toolkit

COPYRIGHT

Enter description of work:

OR

Attach copyrighted work as a schedule

KNOW-HOW

Enter description of Know-how:


OR

Attach schedule disclosing Know-how

Does the know-how relate to:
Formulae
Technical information
Information regarding manufacturing and storage techniques
Information concerning materials, formulations, processes, compositions and formulae
Information generally relating to marketing and sourcing
Business information generally

Will confidential information be disclosed to the licensee subject to obligations of confidentiality?
No
Yes

Useful article:Understanding Patents


Type of licence


Is the licence:
Exclusive (i.e. only the licensee may exercise the licensed rights)
Sole (i.e. only the licensee and licensor may exercise the licensed rights)
Non-Exclusive (i.e. the licensor may continue to exercise the licensed rights and to grant rights of use to other third parties in addition to the licensee)


If patents are being licensed:

Do the patents relate to:
A method? If so, briefly describe the method:

A process? If so, briefly describe the process:

A product? If so, briefly describe the product:



Is the licensee granted the right(s) to:
Dispose of the protected product (including products made using a protected process / method)
Offer to dispose of the protected product (i.e. advertise)
Use the protected product (or process)
Make the protected product
Import the protected product
Exercise the protected method


If designs are being licensed, is the licensee granted the right(s) to:
Dispose of the protected article
Offer to dispose of the protected article (i.e. advertise)
Use the protected article
Make a protected article
Import the protected article


If trademarks are being licensed, is the licensee granted the right(s) to:
Offer and provide services using the mark
Use, offer to dispose of and dispose of goods bearing the mark
Make goods bearing the mark
Import goods bearing the mark


If copyright is being licensed, is the licensee granted the right(s) to:
Make reproductions of the copyrighted work (i.e. copies)
Make adaptations of the copyrighted work (e.g. converting a sculpture into a painting)
Dispose of the copyrighted work
Offer to dispose of the copyrighted work (i.e. advertise)
Use the copyrighted work
Import the copyrighted work


If know-how is being licensed for what purpose(s) may the licensee use and disclose the know-how?


Licensed territory


In which territory does the licence apply?


License limitations


Are the licensee’s rights limited to a specific field of use?
No
Yes, If so, describe the field of use (e.g. “the field of mineral exploration”):


Are specific restrictions imposed upon the licensee? (e.g. “licensee may not dispose of ABC products to XYZ”)
No
Yes, If so, describe the restrictions:


Sublicensing


May the licensee grant sub-licences throughout the territory?
No
Yes, If so:

Will the sub-licences automatically terminate on termination / cancellation of this main agreement?
No
Yes


What proportion (if any) of sub-licensing royalty payments may be retained by the licensee (e.g. “7%”)?


Useful article: “Beneficial ownership


Royalties


In what currency are royalties payable?


Licensor’s banking details:


Useful articles:


LICENSE FEES (upfront royalty payments)

Are upfront royalties (licence fees) to be paid?
No
Yes, If so:

(a) What is the amount of the upfront payment (excluding VAT, GST or similar taxes)? And on which date(s) is/are payments to be made?

Amount Date payable

(b) Is the upfront payment:
A non-refundable upfront payment
A non-refundable running royalty pre-payment
A refundable royalty pre-payment

Useful article: “Deductibility of upfront royalties


RUNNING ROYALTIES

Are running royalties to be paid?
No
Yes, If so:

How are royalties to be calculated?

As a percentage of turnover. If so, what percentage of net turnover is payable?

As a fixed amount per product made or sold (whichever occurs first) / process applied / method exercised. If so, what amount is payable per product made or sold (whichever occurs first) / process applied / method exercised?

As a fixed amount per “trigger” (defined below)

“Trigger” definition:

(e.g. “disposal by the licensee to XYZ of a bearing that falls within the scope of the Intellectual Property”)

What amount is payable per trigger event?

As a fixed amount per royalty period, which “amount” is:


Does this “fixed amount” escalate annually?
No
Yes, If so, by what percent?:


Useful articles:


Would you like to apportion the royalty between the various items of intellectual property?
No
Yes, If so:

IP Type Apportionment percentage
Patents
Designs
Trademarks
Copyright
Know-how
Total 100%

How frequently are royalties to be paid?
Monthly
Quarterly
Half-yearly
Annually


Minimum royalties


Do you wish to impose minimum performance / royalty criteria?
No
Yes, If so:

Period Cumulative minimum performance criteria / royalties

Should a minimum performance criterion not be met:
Does the licensee have an election to make up shortfalls in minimum royalty payments by making a lump sum payment and thereby remove the licensor’s right to terminate the licence?
Is the licensee automatically liable for payment of the shortfall without impact on termination provisions?
Does the licensor automatically assume a right to terminate the agreement without the licensee having an opportunity to remedy the shortfall by payment of a lump sum?
Does the licence automatically convert into a non-exclusive licence without impact on termination provisions? If so, by how much is the running royalty then discounted (e.g. “25%”)?


Audit


Does the cost of conducting a royalty audit transfer to the licensee where the discrepancy between amounts payable and amounts actually paid exceeds a threshold?
No
Yes, If so, what is the threshold? (e.g. “15% of royalties payable”):


Termination


How is the licence terminated?
On a specific date / event, unless the parties agree prior to that date to extend the term of the licence? Date/Event:


On notice by either party. If so, how many business days’ notice?


On breach or mutual agreement only (i.e. perpetual licence)
In the event that minimum royalties are not met (and not remedied, if possible)

Useful article: “Nature of perpetual licences


Will the licence terminate if the licensee challenges the validity of the IP licensed?
No
Yes


Will the licence terminate if only Know-How remains?
No
Yes


Should the licence terminate if a period of suspension due to force majeure (act of God) exceeds a threshold?
No
Yes. If so, how many consecutive calendar days of suspension are permitted?


Surplus stock upon termination


Should the agreement deal with existing stock on termination / cancellation?
No
Yes. If so, upon termination of cancellation:

The licensee is permitted to sell-off existing stock:

(a) Over how many months:


(b) What happens on expiry of such period?


Warranties


The licensor warrants:
That the licensor is the proprietor of the IP or rights therein
That the licensor is free to grant the licence conferred by this agreement
That the licensor has not granted any prior licence in respect of the IP to any other person in respect of the territory (and field of use)
That to the best of his knowledge, the licensor is unaware of any conflicting rights of any third party in respect of the IP and/or the licensed goods/services/methods/processes/works as at the Commencement Date
That exercise by the licensee of the rights in terms of the licence will not infringe the IP of third parties (We suggest that you do not warrant this)
That to the best of his knowledge, the IP is valid and in force
That the IP is valid and in force
That the licensor has not disclosed the Know-How / confidential information to third parties on any basis other than a confidential basis

Tip: Check the validity of patents using the IdeaNav Search Tool


Does the licensor exclude warranties / liability for:
Prior statements and fitness for use
Consequential or punitive damages


Improvements to the IP


Will the licensee have access to improvements to the IP developed or acquired by the licensor without payment of further consideration?
No
Yes

Will improvements to the IP developed by the licensee automatically be licensed to the licensor on a non-exclusive, royalty-free basis?
No
Yes. If so, may the licensor freely sub-license such improvements to third parties?

No
Yes


Marketing obligations accepted by the licensee


Does the licensee accept obligations to create and satisfy the market for the licensed Products, Works, Methods or Processes?
No
Yes. If so, what kind of effort is required?

Best efforts (we caution against this)
Reasonable efforts (sometimes has same meaning as “reasonable commercial efforts)
“Reasonable Efforts” defined so as to exclude commercial considerations
Reasonable commercial efforts (i.e. assume no obligations if the licensee does not generate a profit therefrom)


Indemnities by the licensee


Does the licensee wish to indemnify the licensor against:

Damages resulting from the licensee’s conduct, action or inaction?
Product liability claims?


Insurance


Will the licensor take out insurance to cover his indemnities?
No
Yes. If so, how much?


Will the licensee take out insurance to cover his indemnities?
No
Yes. If so, how much?


Technical assistance


Will the licensor be providing the licensee with technical assistance?
No
Yes. If so:

a. Detail consideration payable for such assistance:

Description of service Consideration payable (inclusive of VAT / GST)

b. Do you wish to escalate the amounts in the above table?
No
Yes. If so, by what percentage per year?


Useful article:Roll-up licence


Late payment


What interest rate is to be levied upon late payments?


Quality control


Does the licensor wish to exercise acts of quality control (consider this where trademarks are licensed)?
No
Yes. If so, may the licensor:

Dictate quality control standards that must be adhered to by the licensee? OR
Merely provide advice as to quality control?


Infringement of licensed IP


Where the licensed IP is infringed / challenged within the territory:

a. Who will control proceedings?
Licensor
Licensee

b. Who will be responsible for expenditure incurred?
Licensor
Licensee

c. Will the other party not in control provide all reasonable assistance at its own cost?
No
Yes

d. If the party not in control over proceedings joins proceedings, may such party claim damages in line with its financial contribution?
No
Yes

e. If the party in control over proceedings does not institute proceedings within 90 days, may the other party institute proceedings?
No
Yes


Third party claims of infringement


Does the licensor intend to “defend” the licensee against related claims of infringement by third parties?
No
Yes. If so:

a. Who will control proceedings?
Licensor
Licensee

b. Who will be responsible for expenditure incurred?
Licensor
Licensee

c. Will the licensor indemnify the licensee against any consequent order, costs and damages award?
No
Yes


Will the party not in control of proceedings provide all reasonable assistance at its own cost?
No
Yes


Where the licensee has been found by a competent authority to infringe the IP of a third party, is the licensor permitted to terminate this agreement?
No
Yes


Maintenance of IP


The licensor shall at his own expense maintain the IP in force (this option is preferred)
The licensor shall in its sole discretion and expense maintain the IP in force
The licensee shall throughout the term of the agreement at its own expense maintain the IP in force

Tip: Save up to 70% on patent renewal fees / maintenance fees / annuities by using our online renewal tool.





Acknowledgements


Does the licensee acknowledge that all Know-How required to exercise his rights under the licence has been provided by the licensor?
No
Yes

Does the licensee acknowledge licensor’s title in the intellectual property?
No
Yes


Confidentiality


Should the licensee’s employees and contractors that gain access to confidential information sign similar confidentiality undertakings (if any)?
No
Yes

Should confidentiality provisions (if any) apply reciprocally, i.e. upon the licensor as well?
No
Yes


Arbitration


Should disputes be referred to arbitration?
No
Yes. If so:

a. Where should the arbitration hearing be held?

b. Which rules should apply to the arbitration?

c. In the event that the parties cannot agree upon an arbitrator, who will appoint the arbitrator? (e.g. “the President from time to time of the South African Institute of Intellectual Property Law”)

Arbitration comment
We suggest arbitration where:

  • the relationship is sensitive,
  • a court case would disclose confidential information to the public, or
  • the matter is so technical that the parties wish to be able to appoint an arbiter skilled in the art.

In other instances, arbitration is used to make legal proceedings cumbersome (i.e. select a country that is not common to either the licensor or licensee. Arbitration may be quicker than normal court proceedings, but is generally more expensive.

Useful article:Deduction of IP litigation expenses


Cession of rights


Neither party may assign its rights and obligations in terms of the licence
Only the licensor is entitled to assign its rights and obligations in terms of the licence
Only the licensee is entitled to assign its rights and obligations in terms of the licence
Both Parties may assign their rights and obligations in terms of this agreement to: (e.g. “persons in which the assigning party holds (either directly or indirectly) at least 50% shareholding”)

Useful articles:


Recordal of licence


Should the licence be recorded on the relevant IP registers, to convert the “personal” licensed rights into “real rights” that attach to the IP?
No
Yes

Useful article:Recordal of licences


Governing law


Which laws will govern this agreement?


Other useful articles:


Where to from here?

We will convert your licence term sheet into a watertight licence agreement at a fixed price of R5,000 / US$715 / €500 (exclusive of VAT, which is not payable by non-South African clients).

Should we identify potential risks, we will call you to discuss the issues at no additional charge.

Anthony van Zantwijk (BSc Eng, LLB, LLM (Tax)) is a patent attorney and an expert in technology transfer with more than 10 years experience in negotiating and drafting IP transactions for multinational companies.


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