This contract tip is for customers to avoid starting an intellectual property (IP) license after full payment.
IP licenses typically begin on the agreement's effective date.
Some vendors persuade customers to start the license only after the vendor receives the full license fee at some point later in the term.
I call this the springing IP license. It's similar to a concept in real estate law where someone's interest in land doesn't start until after some future event.
I understand the vendor's logic, but this approach can create a bunch of problems for a customer.
Here are two:
1. Bankruptcy risk
When you make the license into a springing interest that arises in the future, the customer is at risk if something happens to the vendor in the interim.
Customers that have a license before a vendor files bankruptcy are protected under the U.S. Bankruptcy Code, even if the customer hasn't fully paid for it. A customer does not have the same protection when there is just a promise of a future license grant.
2. Interim use
This language is a problem if the customer will start using the IP rights before full payment. The customer risks an infringement action because it does not yet have the right to use the IP.
Yes, the customer could argue implied license or equitable right, but it is unclear. And why should the customer have to even go there and be put in a position to have to make that argument?
The vendor has a claim if the customer breaches the contract, including non-payment. But with a springing license, the customer risks a copyright infringement claim on top of the breach of contract claim.
What other risks do you see with these springing future IP grants?
