Copyrighted work can be distributed to different parties by licensing the work. The process of determining what terms to include in a “term sheet” or MOU such as how the grant clause should be structured (exclusive or non-exclusive), duration of the license, parties rights under the agreement, royalties, consideration, assurances to each party, change of control when IP matter such as copyright involved, impact of bankruptcy, representation & warranties, choice of law, termination etc is the duty of a party to the agreement. Upon receipt of “term sheet,” from one of the party, attorney drafts the license agreement. Of course, the drafted license agreement need to be shared with other party’s attorney to hash-out any differences in the drafted agreement. Sometimes, a party may want the attorney to be actively involved during negotiation of terms depending on the complexity of IP related matter.
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Assignment v. license
Assignment of copyright: “A transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner’s duly authorized agent.” 17 U.S.C. § 204(a).
Recording of assignment: Recording for value at the copyright office has certain advantages. They include priority over subsequent bona fide purchaser of copyright title for value based on public notice by recording of earlier assignment.
License: A license can be exclusive or non-exclusive depending on the need of the licensor(i.e., the owner of the copyright). Exclusive license is granted solely to single entity whereas non-exclusive license can be multiple entities, with each paying certain royalties as indicated in the license agreement.
Grant clause is the most important part of any licensing provision. It decides what the licensor (the owner of the copyright license) is granting to the licensee (receiving party). It may include certain restrictions including geographical. It can also refer to other sections of the license agreement for defining the terms in the grant clause.
Defining key terms: Include a separate section to define the key terms in the agreement. If you do not define the key terms in the agreement, then in case of a future litigation the common meaning of the word in the industry or dictionary meaning will be read into the agreement. That may not be the intent of parties to the agreement.
Exclusion of gray market goods
Gray market goods: The goods that are manufactured and acquired by third (3rd) party imported into the United States without the permission of the owner of the copyright or exclusive licensor. 17 U.S.C. § 602 (a) (1). The terms of the license agreement need to be stated in such a manner that no gray market goods are allowed into the United States. “Geographical price differentiation” is one of the way either the owner of copyright or licensing party earn royalities throughout the world.
Duration of the license- 17 USC § 203 (a) (3) & State contract law impact
It is a better to state the duration of the license or specify the end date where you can renegotiate a new license. Especially in “exclusive or non-exclusive grant of transfer of a license,” there is a statutory provision of 35 years license from the date of execution (see17 U.S.C. § 203 (a) (3)), unless there is an agreement for a shorter period of time or any available state law which could allow licenses of infinite duration to termination in less than 35 years. Rey v. Lafferty 990 F.2d 1379 (1st Cir. 1993).
Avoid First Sale Doctrine by drafting with intent to license
To avoid first sale doctrine, we need to satisfy the following test laid out in the 9th circuit: “…[A] software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user’s ability to transfer the software; and (3) imposes notable use restrictions.” Vernor v. Autodesk, Inc., 621 F.3d 1102 (9th Cir., 2010). Restrictions in a non-exclusive license can be anything from how you control the distribution of the licensed copyright by the licensee.