Drafting the Fine Print: Every Word is Significant in a License Agreement

June 28, 2019
Post by Tina G. Yin Sowatzke, Pharm.D.

Licensing agreements can be both complex and extensive, however, diligence must be exercised in ensuring that the scope of rights to be transferred are clearly defined. The failure to do so may result in disputes over the interpretation of licensing agreements, where each word and phrase may be painstakingly scrutinized in court. Such disputes arose in the case of Sköld v. Galderma Labs. L.P., where two separate agreements were entered into regarding the transfer of intellectual property rights over the same product, RESTORADERM, a proprietary drug-delivery system for skincare products.

In the first license agreement between the parties, the agreement included a provision stating that “[a]ll trade marks applied for or registered (including ‘Restoraderm’) shall be in the sole name of [the licensee] and be the exclusive property of [the licensee] during the Term and thereafter[.]” (emphasis added). A survival provision was included stipulating that vested rights would outlive the term of the agreement.

A second agreement was entered into by the parties two years later, where the licensor transferred to the licensee “Restoraderm Intellectual Property,” defined as patent rights and associated know-how, but did not explicitly include trademarks. When the licensee later began using the RESTORADERM mark on products that did not use the licensor’s technology, the second agreement was eventually terminated, and the licensor sought a list of assets for the licensee to return, including the RESTORADERM mark.

The Court held that because the first agreement unambiguously provided for the transfer of the trademark to the licensee, the second agreement did not completely replace the first agreement, even with an integration clause, as it only transferred “Restoraderm Intellectual Property” defined as patent rights and associated know-how. Consequently, when the second agreement was entered into between the parties, the provisions regarding the vested trademark ownership rights of the licensee survived without returning the trademark rights back to the licensor. Further, in the absence of clear language limiting the use of the mark to a particular product or service, the licensee may have the freedom to utilize the mark in other ways.

This case serves as a reminder to do a second check of all provisions of a license agreement to ensure the agreement clearly defines what rights are being transferred—in addition to the type of intellectual property being transferred—especially if multiple types of intellectual property are involved. Further, if the same parties enter into a subsequent agreement, it should not be assumed that the rights of the previous agreement are automatically terminated, as the first agreement may contain rights that survive termination.

Tina G. Yin-Sowatzke, Pharm.D. is an Associate Attorney in the MVS Biotechnology & Chemical Practice Group. To learn more, visit our MVS website, or contact Tina directly via email.

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