What is a License?
License is defined under the THE INDIAN EASEMENTS ACT, 1882, sec 52, as:
Where one person grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful, and such right does not amount to an easement or an interest in the property, the right is called a license.
In the caselaw, Pradeep Oil Corpn. v. Municipal Corpn. of Delhi[3], the Supreme Court further explained the essentials of licence as under: A licence, inter alia,
(a) is not assignable;
(b) does not entitle the licensee to sue the stranger in his own name;
(c) it is revocable; and
(d) it is determined when the grantor makes subsequent assignment
So, a license agreement has two parties, one is a licensor, and another is the licensee. The Licensor has the right to grant the use of copyright, trademark, property, patent, etc; to the licensee. But the grant of license does not create any transfer of interest in the licensed article.
Licenses come with terms and conditions, which if breached can create a matter of civil or criminal lawsuit. In this article we will cover the basic types of licenses and the terms of a basic license agreement for intangible properties like trademarks, patents, copyrights, etc;
What are the different types of licenses?
Now, that we have covered, “what is a license agreement?”, let us dig into the different types of licenses
Non-Exclusive Licence
When the licensor is not legally bound to grant exclusive rights to the licensee. As a result, the licensor grants the license to multiple licensees. This means the Licensor can enter into license agreements with other licensees because he retains the rights to further issue licenses to other parties to use the licensed instruments, such as patents, trademarks, copyrights, etc;
Another aspect of non-exclusive licensing is that the licensee must expect to compete with the licensor and other licensees.And if licensor provides license on more favourable terms to one licensee, he will have to extend the same terms to all the licensees, under the concept, “most favoured”.
The case law Income-Tax vs Lucas-T.V.S. Limited defines, non-exclusive rights, as:
as meaning right enjoyed by the licensee in common with the grantor, its successors and assigns and all other persons to whom the grantor had granted or the grantor, its successors and assigns shall thereafter grant the like right.
2. Exclusive licenses
Exclusive license is defined under the sec 2(f) The Patent Act 1970 as:
“exclusive licence” means a licence from a patentee which confers on the licensee, on the licensee and persons authorised by him, to the exclusion of all other persons (including the patentee), any right in respect of the patented invention, and exclusive licensee shall be construed accordingly.
When the licensee is getting highly valuable instrument to exploit and create humongous amount of cash out of it, they go for exclusive rights. In exchange of exclusive license rights, licensor often charges royalty and assurance that criminal breach will not place of the license.
In the case law Prentice Hall India Pvt. Ltd. vs Prentice Hall Inc. And Ors. on 10 May, 2002, exclusive license is defined as:
"exclusive license" means a license which confers on the licensee or on the licensee and persons authorised by him, to the exclusion of all other persons (including the owner of the copyright) any right comprised in the copyright in a work, and "exclusive licensee" shall be construed accordingly".
3. Non-transferable licenses
When distribution, resell, reassign, release, or retransfer is not allowed of the licensed property it is called a non-transferable license.
What are the essential clauses of the license agreement?
Agreements are as strong as their consisting terms. So, let's talk about the framework one which the agreement is going to be built:
A. Names and definitions
The initial clause should define the parties, their residence, and their position as the licensor and licensee. Then, any other word in the agreement, that will be confusing for the parties, or their agents.
B. Recitals
In this clause, the whereabouts of the license are described in detail. Recital puts a monetary face value on the licensed property.
C. Exclusivity and right of transfer/sub-license
Then, describe the nature of the agreement. As that is very important when we talk about the license agreement. An exclusive license agreement will help the licensee in competing businesses. While the non-exclusive license agreement will help an industry revolution.
D. License fee
The tranche clause takes care of the minute details from the total fees, to the mode of payment, and the amount paid in instalments all are mentioned in the license agreement
E. Geographical limitations
This clause mentions the areas where the licensed property or any service or products created out of using the licensed property should not be used.
F. Quality control
Quality deprivation can hammer the brand name of the licensor. So, Licensor should be allowed to put parameters to check the quality control. Those set parameters should be doable, and the licensee must follow them.
G. Insurance, Indemnity, and Liability
After taking the license, the licensee makes sure that he pays for the insurance cover timely.
The licensor is free of liability and will be indemnified by the licensee for all the losses physical
And non-physical, during the License time.
H. Termination and Renewable
This clause contains whether parties will terminate the contract after covering a time
Or will renew for the same duration? Parties can set minimum conditions, for the renewable to
happen. Terminations types are following:
Termination for breach
Termination for convenience
Termination for non-performance
Termination for insolvency
Termination from force majeure
J. Intellectual property Rights (IPRs)
This clause describes who owns and possesses the IPR and is allowed as per the license agreement to modify, copy, resell, redistribute, or re-assign.
K. Advertising and promotional materials
The terms of marketing and advertising are required to be defined between the licensor and licensee to avoid any future mishap.
L. Arbitration and Dispute resolution
In case of any dispute arising, parties will go first to their arbitrator and the follow through the entire arbitration process.
M. Governing law
Parties to the license agreement will follow the set regulations around their industry. If taxes are imposed, or license fees, parties will pay through. In case of inspections, parties will coordinate.
N. Confidentiality
Parties will not breach the confidentiality agreement by leaking any information to the public or third party that was implied or explicitly denied by one party to another.
O. Warranties and Representations
How to revoke a license?
A license is revoked under the sections 61 and 62 of the Indian Easement Act 1882. Sec 61 says that the revocation of a license may be express or implied.
Illustrations
(a) A, the owner of a field, grants a license to B to use a path across it. A, with intent to revoke the license, locks a gate across the path. The license is revoked.
(b) A, the owner of a field, grants a license to B to stack hay on the field. A lets or sells the field to C. The license is revoked.
62. License when deemed revoked.—A license is deemed to be revoked—
(a) when, from a cause preceding the grant of it, the grantor ceases to have any interest in the property affected by the license;
(b) when the licensee releases it, expressly or impliedly, to the grantor or his representative;
(c) where it has been granted for a limited period, or acquired on condition that it shall become void on the performance or non-performance of a specified act, and the period expires, or the condition is fulfilled;
(d) where the property affected by the license is destroyed or by superior force so permanently altered that the licensee can not longer exercise his right;
(e) where the licensee becomes entitled to the absolute ownership of the property affected by the license;
(f) where the license is granted for a specified purpose and the purpose is attained, or abandoned, or becomes impracticable;
(g) where the license is granted to the licensee as holding a particular office, employment or character, and such office, employment or character ceases to exist;
(h) where the license totally ceases to be used as such for an unbroken period of twenty years, and such cessation is not in pursuance of a contract between the grantor and the licensee;
(i) in the case of an accessory license, when the interest or right to which it is accessory ceases to exist.
When is a license irrevocable?
The Supreme Court in landmark judgment of Ram Sarup Gupta v. Bishun Narain Inter College[21], has explained the revocability of licence as under:
Section 60 enumerates the conditions under which a licence is irrevocable. Firstly, the licence is irrevocable if it is coupled with transfer of property and such right is enforced and secondly, if the licensee acting upon the licence executes work of permanent character and incurs expenses in execution. Section 60 is not exhaustive. There may be a case where the grantor of the licence may enter into agreement with the licensee making the licence irrevocable, even though, neither of the two clauses as specified under Section 60 are fulfilled. Similarly, even if the two clauses of Section 60 are fulfilled to render the licence irrevocable yet it may not be so if the parties agree to the contrary… On the same reasoning there is nothing to prevent the parties agreeing expressly or impliedly that the licence which may not prima facie fall within either of the two categories of licence (as contemplated by Section 60) should nevertheless be irrevocable… The parties may agree expressly or impliedly that a licence which is prima facie revocable not falling within either of the two categories of licence as contemplated by Section 60 of the Act shall be irrevocable. Such agreement may be in writing or otherwise and its terms or conditions may be express or implied. A licence may be oral also in that case, terms, conditions and the nature of the licence, can be gathered from the purpose for which the licence is granted coupled with the conduct of the parties and the circumstances which may have led to the grant of the licence.
Download the format of the license agreement:
Download the Pharmaceutical License
Specimen of license
Reference:
higherlogicdownload.s3.amazonaws, https://higherlogicdownload.s3.amazonaws.com/AIPLA/c96234c2-048c-430b-ba69-5ad97a647c4b/UploadedImages/ip_transactions_-_forms_microsite_docs/02_Annotated_End_user_License_Agreement_FINAL.pdf (last visited May 31, 2022
Kalpana Borjha, End User License Agreement and Key Terms In Eula, lexforti, (May 31, 2022, 12:08 PM), https://lexforti.com/legal-news/end-user-license-agreement-and-key-terms-in-eula/
Infosys Limited Vs. Deputy Commissioner of Income Tax, International Taxation Circle-1 (2), MANU/IL/0278/2021
https://www.priorilegal.com/legal-forms-and-documents/end-user-license-agreement
Dassault Engineering Analysis Centre of Excellence Private Limited vs. The Commissioner of Income Tax and Ors., MANU/AR/0002/2010
Engineering Analysis Centre of Excellence Private Limited Vs. The Commissioner of Income Tax and Ors., MANU/SC/0137/2021
Id.
Stephen F. Pinson, Negotiating Software Contracts� Successfully Negotiating an Indemnification Section, 36 The Licensing Journal 1, 1-2 (2016).
Knut Helge Kirkhus, What is an End User License Agreement (EULA) and its key terms?, iPleader Blog (June 1, 2022, 10:22 PM), https://blog.ipleaders.in/end-user-license-agreement-key-terms/.
Supra note at 4.
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