Today’s contract tip is about irrevocable intellectual property (IP) licenses.
A license grant provision shapes the permissions granted by the licensor to its licensees. One of the key concepts in many licenses is whether it is irrevocable. If the license is irrevocable, the licensor cannot terminate it. This is true even if the licensee breaches the terms. The licensor's only option is to sue for damages.
Here are four things to remember about irrevocable licenses:
1. Irrevocable is different from perpetual - They seem similar, but a perpetual license has a different meaning. A perpetual license goes on forever UNLESS it is terminated, which may be because of the licensee's breach or another condition subsequent (ala this perpetual license terminates if you sell your business).
2. Scope of the licensor’s own rights - Licensors can only grant rights they have. So if the licensor received a revocable license from a third party, it cannot turn around and grant an irrevocable license to its licensees.
3. Infringement - Most indemnification provisions give the licensor the right to terminate the license if there is an infringement claim. The licensor then has to replace the technology with an equivalent one or refund the amounts paid. If you have an irrevocable license grant, make sure to exclude that option from it.
4. Non-payment - Watch for how payment works with an irrevocable license grant. If you are the one making the irrevocable license grant, consider having the irrevocable nature apply only AFTER you've received full payment.
What other issues should we think about with irrevocable licenses?
