The Thralldom Coin

The perceived end in acquiring technology is marked by the contract. The contract or agreement cloaks its polarized nature; being either very good or torturous for both parties. All too often the contract is not seen as another exercise in due diligence. Commonly, the prospect accepts the negotiated amounts imbedded in the contract and within thirty seconds the prospect is transformed into ‘client’.

In the contract phase of the relationship, one must recognize that the contract represents a huge negotiating piece. Since the contract was prepared by the vendor it is meant to protect the vendor’s self interest. The licensee therefore must exercise their position to ensure their needs are met. The contact sets the stage for how the relationship between the parties will operate in good and bad times.

The contract has two major components, those stipulations expressed in the contract and those implied either within the contract or through external bodies. Due to the very nature of the exchange of intellectual property for compensation, local, national and international laws define the rights of the licensor and the licensee. In the best case, the licensee has technology which supports their organization for decades. On the downside, the licensee is ensnared with financial obligation for technology which they simply cannot use.

From the licensee perspective, the rule when dealing with the contract is having more ‘eyes-on-deck’. Basically the more people who review the agreement increases the probability that the licensee’s needs are met. The agreement review should proceed through multiple iterations addressing issues by way of increasing complexity. As part of the due diligence process, the final review of the agreement should be done by a lawyer who specializes in the type of intellectual property that is being acquired and ensure that contractual nuances are being met.

The appropriate address of intellectual property contract analysis is best served in another forum; however there are key issues the layperson should be aware of: ownership, warranty/support, jurisdiction, and export provisions. Of these issues, and there are many more as depth in the analysis increases, the simplest to address is support and the most complex is export provisions.

The warranty/support issue should be at the forefront of the licensee’s thoughts. Basically, the importance of the contract is at the forefront when the technology breaks: how quickly will the licensor respond and how; will they provide a fix, a patch or a replacement; and how long will they continue to support your technology. Keep in mind that the technology may be jugular to the licensee’s operation and a resolution to an issue should be swift to ensure no loss of business operation. An immediate ‘red-flag’ is where the licensee doesn’t operate a support center during the same hours of operation as the licensor. Another important issue that the licensee should ensure is document is the licensor’s escalation policy for dealing with licensee issues.

On the other end of the spectrum, what does the agreement say about exporting the technology outside of the jurisdiction where it is purchased/licensed? What do federal laws say about the export of the intellectual property? These are issues of paramount importance should the licensee have operations outside of the contract jurisdiction.

The contract/agreement represents the glue that binds the licensor and the licensee. The euphoria at the time of signing can easily become a point of a litigation should things go awry. Take the time, continue your due diligence and if all is done well, you and the licensor will share a ‘two-headed’ coin!