This article has been written by Mehak Parihar, pursuing the Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.

Introduction

The law not only protects but also proffers the economic rights vested in the creator of a copyrighted work by virtue of his labour and investment. Therefore, the creator can reap the benefits from his work by generating wealth through the mode of assignments and licenses to maximise incentivisation. 

In this article, we shall attempt to unwind the realm of Copyright Licensing and learn how to draft the License Agreement. Before delving into what constitutes the essential elements of a copyright licensing agreement, it is important to understand the concept of copyright licensing. 

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Unravelling copyright licensing

Copyright licensing is a mode of transferring a right or set of rights for the exploitation of the copyrighted work, without which, any act done would be tantamount to infringement. The transfer of a right or a set of rights could pertain to the right of publishing, broadcasting, making translations or transliterations, etc or a combination thereof. The right may be created in a pre-existing work or in a work that is yet to come into existence on a given future date. Therefore, it is a transfer of specific interest for a predetermined duration in turn of compensation for the mutual benefit of the owner of the copyright, known as the “Licensee” and the party to whom the right is transferred, known as the “Licensor”. 

Therefore, copyright licenses can either be exclusive or non-exclusive in nature. The exclusive license gives only the licensee the right to use the copyrighted work for the length of the agreement while restraining other entities from exercising such rights. Conversely, where a non-exclusive license is given, the same right transferred to the licensee can be exercised by other authorised parties simultaneously. 

Do you really need a copyright licensing agreement?

Drafting a copyright licensing agreement is essential since any mode of assignment or transfer is deemed valid in the eyes of the law only if it is reduced in writing and is signed by the parties or his/her duly authorised agent as also laid under Section 19 of the Indian Copyright Act, 1957. The agreement shall clearly lay out the parameters of the permissible and impermissible acts defining the scope of its operation. A lot of care and due diligence goes into the drafting of the agreement, ensuring all the clauses capture the true essence of the agreement to avoid any grave damage to either party. Hence, it is also important to negotiate and maintain a balance of interest for both parties to avoid unwanted prejudice which can later be contested in courts.

Essential clauses in a copyright licensing agreement

The following provisions form an integral part of copyright licensing in agreement:

  1. Title: the agreement starts with the title, namely, “Copyright Licensing Agreement” or simply, “Licensing Agreement.” Thereafter, the parties, their registered addresses and other contact details are laid down.
  1. Recitals: the recitals form a vital part of the agreement defining the backdrop of the contracting parties. It also identifies the parties and pronounces them usually as the “Licensor” and the “Licensee.” This elucidates the relationship between the parties and helps create a foundation to understand the agreement between the two parties to any person, known or unknown to the agreement, with utmost clarity. It also establishes that the clauses in the agreement are binding and not the recital itself.
  1. Definition: this is also known as the “Interpretation Clause” which identifies and defines important terms used in the agreement. This ensures that there is no scope of ambiguity. It also facilitates cross-referencing when needed, avoiding the need to clarify every time the defined terms are used in the main body of the agreement. This enhances the presentation of the agreement alongside keeping it precise and to the point. Terms like “royalty”, “permitted use”, “ third-party” etc are usually defined here.
  1. Grant of license and rights:  this is the most crucial clause in the agreement as it lays down the scope of use of such a license, exceeding which, any act of the licensee would constitute an act of infringement. This simply answers the following:
  • Is this an exclusive or non-exclusive license?
  • Who shall have the right to use it?
  • What constitutes “use” or what are the permitted activities?
  • What are the activities that are prohibited and must be refrained?
  • Is the right to use confined by any geographical or political limits?
  • Is the right to use vested up to the attainment of certain goals like a defined profit or net sales?
  • Does it only give the licensee the right to use and no other rights from subject-matter jointly constituted?
  • Does the right in the copyrighted work vest in the licensor solely or is there any devolution of any other rights?
  1. Indemnification: this clause identifies the course of action in the event of damage/loss caused by an infringing act by the other party in contravention of the permitted acts laid in the agreement. It lays down that in what events and to what extent shall the parties be indemnified. This helps to make good of the loss suffered by another party. The clause can state the extent of indemnity as well. It may be a fixed amount or based on ratios of damages or if some portion may be fixed while the rest may depend on the ratio of damage caused. 
  1. Consideration: this is an essential element of any licensing contract. The clause lays down the amount of consideration which the licensee shall pay to the licensor in lieu of using the copyrighted work, in the form of royalties. The payment of consideration can be at a flat fee or may depend on the sales made or profits accrued, or a combination of both the prior stated factors. Therefore, the mode of calculating the consideration is clearly identified. It also creates an obligation on the licensee to maintain a record of all such sales/profits made by him for the purpose of auditing. In addition to this, it also establishes the routine of making the payment. It can be monthly, quarterly, or yearly, as deemed fit by the contracting parties. 
  1. Obligation of the parties: Once the rights have been rolled out, it is important to narrate the duties since where there is a right, there is always a corresponding duty. These obligations are generally with respect to mutual-respect for the copyright-works shared by both parties in furtherance of this contract whereby each party agrees to not disclose any information shared with another. It can extend to other kinds of intellectual property rights like, trademarks, trade-secrets, know-how, copyrights in manuals of use, instructional texts and other valuable works, shared in confidence.
  1. Alterations and modifications: this clause is material not only to the licensee but also the licensor since it establishes the right of both the parties in the event of any modifications or alterations made to the original work. It identifies the owner of the consequential work and the extent of ownership. Eg: if the parties agree to be joint authors of the work, what shall their share of authorship be? This can constitute a major point of negotiations while drafting this agreement.
  1. Term and termination: third clause defines the duration for which the licensor grants the right to use the copyrighted work to the licensee, It identifies the date of effect and the date of termination. It also states whether or not the agreement can be renewed and if it can be renewed what shall be the term for which such recourse be pursued. It also identifies if there is any precursor to such renewal, i.e., any conditions to accentuate renewal. Eg: if both the parties have not breached any conditions stipulated in the contract and have extended wilful cooperation in the entire tenure of the agreement, it may be renewed, subject to confirmation of the parties. It also identifies whether the renewal is automatic or subject to consequent ratification.

Furthermore, termination elucidates that in what circumstances can the parties to the agreement terminate the contract before the term of the contract. It may require prior intimation or be terminated with immediate effect. Eg: the clause may state that where the contract is for a period of 5 years, the contract may be terminated by either party at an earlier date by stating their intent in writing, two months in advance. The effects of such termination are also stated therein. 

  1. Dispute resolution: this clause is an important boiler-plate clause which is relevant when any dispute arises between the parties in the event of any breach or dispute arising out of this agreement. The choice of dispute resolution can range from litigation, arbitration, mediation or conciliation, which shall depend on the parties.
  1. Governing law: It lays down the law that governs the said agreement. This may seem understood when both the parties are principally operating in the same jurisdiction, however, it shall still be incorporated.
  1. Other clauses: in a clause where there is disclosure of information, there shall be a clause on representation and Warranties which shall be an assertion of existing facts. Apart from this, clauses like severability, notices and entire agreement shall be added. Any other additions to the agreement which can be projected as an attachment in the form of schedules or annexures shall be utilised as such. The agreement shall be concluded with the signatures and signing parties stating their assent to all the terms incorporated in the agreement.

Conclusion

A copyright licensing agreement is very crucial to the author of the copyrighted work, given the time, effort and capital invested thereof. Therefore, it is important to keep the above-mentioned clauses and the postulations mentioned, in careful consideration before concluding any agreement of the like nature to prevent any damage to either party. Once drafted, repetitive revisions ought to be avoided to ensure the intent of both parties is reflected in their best interests.

References

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