Licence conditions may be put in place to cover:
- accounts, inspection and audit
- assignment (transfer)
- pre-market-entry commercialisation milestones
- post-market entry performance targets
- confidential information.
All licence agreements typically demand that:
- the licensee maintains good records and accounts
- the licensor is permitted to inspect those accounts and records
- the licensor usually bears all costs of that inspection.
Australian licensees often form partnerships with multinational companies to commercialise the intellectual property (IP) globally. In these cases, the Australian licensee would grant a sub-licence to an overseas company, which then becomes the sub-licensee. Typically the licensee gains the licensor's consent, which must not be unreasonably withheld.
Informing the licensor and gaining consent ensures the licensor will be satisfied that:
- the sub-licences are only being granted to companies that have the capability and resources to commercialise the product or service to best advantage
- the sub-licences' financial terms, as they impact on the licensor's royalties, are within commercial parameters.
Assigning a licence is different from granting a sub-licence. An assignment involves the transfer of all the licensed rights from the licensee to the assignee. Typically, a licence will state that a licensee must not assign the licence without the prior written consent of the licensor and such consent must not be unreasonably withheld.
These are performance obligations on the licensee, between the time the licence is granted and the first product sale. They are indications of progress through the product development stage.
Milestones may be:
- manufacturing a working prototype
- manufacturing a production model
- a patent being granted
- securing a sub-licensee with the capacity to market worldwide
- spending a specific amount of money to develop, market or sell the IP product
- the acceptance of a business plan
- the first sale of a product.
If commercialisation milestones are not achieved by the agreed dates, the licensor has the right to terminate the licence and grant it to another person or company.
A typical post-market entry performance obligation makes provision for a licensee to achieve certain minimum sales. If the minimum sales are not achieved, the licence may be terminated.
In a typical model:
- the territory is divided into markets
- in each market there is a different minimum sales target each year or every six months
- each sales target is assessed against a particular market, a business plan, whether there are competing products, and other factors
- the parties agree to a minimum sales target for each market, or failing agreement, a sales target is decided by an independent expert according to commercial benchmarks
- if an agreed minimum sales target is not achieved the licensor may terminate the licence.
Typically, a licence will require that the licensee does not disclose material relating to the IP or other confidential information to outside parties. This is especially important if it is an exclusive licence.
For example, a licensee may have an exclusive licence in a particular field of use, but should be obliged to maintain confidentiality in relation to its application in all other fields. They should be prohibited from using the IP and confidential information outside the agreed field of use. This applies whether there is product, field or territorial restrictions.