This article has been written by Nikhil Pandit, pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.
We live in the era of content. This content has no such definition in any law in India. From Television to social media, we consume content unknowingly and knowingly. The person who creates the content is called the content owner/provider/creator and the one who consumes it is called the content user. Due to the advancement of technology, the speed and the feasibility at which we are able to get the content just by clicking “ I accept” has increased tremendously. Although a lot of people accept the terms and conditions, simply clicking” I accept” and neglecting the provisions can lead to serious infringement claims and liabilities. A content license agreement is mostly in the written form and is always best to have it in written form to avoid any disputes and nuances. Before starting to draft the content license agreement it is important to note that the content is “licensed” and not assigned to the user which means that the ownership will remain with the content creator while in an assignment the owner will lose ownership of the content. This is the basic concept of a content license agreement. So now let us look at the important clauses needed to draft a content license agreement.
Grant of License
This is the most important clause of this content license agreement. This clause will actually define how the rights will be transferred and how the remaining agreement will be comprehended. The grant of license basically means that it will cover the scope of the content that is being granted by the Licensor( content creator) to the content user.
Generally, there are many types of licenses granted but the mainly and frequently used are the exclusive and non-exclusive grants of license. An exclusive grant of the license will allow only the particular party who is entering into the agreement to enjoy and consume the content and not to any other third party. Conversely, a non-exclusive grant of the license will not impose any restrictions to license the content to any number of licensees(content consumers).
Example of an exclusive grant of license clause
“Subject to the terms and condition of this Agreement, Content Provider hereby grants to the Company an exclusive right and license to use, reproduce, encode, encrypt, market, promote, transmit, distribute and publicly display the Content on the Platform worldwide within the territorial limit of India for the Term of this Agreement”.
Example of a non-exclusive grant of license clause
“In consideration of the license fee paid to the licensor, the Licensor grants a non-exclusive right in the territory of the whole world. The Licensed right shall mean and include the right to distribute the songs through the platform. Any right not expressly granted to the Licensee under this Agreement shall be retained by the licensor.” There are other types of licensees also like perpetual license, territorial license, irrevocable license, etc., but the exclusive and non-exclusive grant of license is the most used one.
This is a clause peculiar to such agreements. This provision ensures that no party uses the name or the business logo of another party in any publicity act or reveals their association to the public without the prior written consent of the other party. The condition of such a clause is that it facilitates a party to learn and track the usage of such party’s name and the business logo by another party in the publicity act. It puts a condition on the consenting party that such a party shall not withhold consent for any unreasonable cause.
The term clause defines the duration of the agreement. This is usually like the termination clause in all the standard contracts. In the content license agreement, the term will define the duration for which the license for the content will exist and will come to an end. The Licensor can have either an auto-renewal clause in which after the completion of the term of the agreement, the agreement will be renewed and will again come into force automatically. If there is an option to renew, the parties will have to mutually discuss and if they want to they can renew the agreement.
Example of the term clause
This Agreement, the exclusive license granted to the company, and the provisions hereof, except as other provided, shall be in force and full effect commencing on the date of execution of this agreement and shall last for a term of 2(Two) years (“ TERM”). The agreement shall not be automatically renewed and can be renewed upon giving notice to the party upon mutual agreement and further negotiations between the parties.
The content which is being licensed might sometimes be a very valuable asset of the Licensor. Therefore, the Licensor may want to keep the content itself confidential and it is the duty of the Licensee to keep the content confidential. The parties also can enter into a separate NDA( Non-disclosure agreement) to keep the content confidential. It is always better to define in detail in the definitions clause what includes confidential information and what is excluded. The Licensor also needs to imagine the situation: what if the agreement gets terminated then what will happen to the confidentiality will it survive and thus the clause needs to be drafted accordingly.
Example of a Confidentiality clause
The Licensor will not disclose Confidential Information during the Term or at any time during the 3-year period following the end of the Term. The Licensor will take all reasonable measures to avoid disclosure, dissemination, or unauthorized use of Confidential Information, including, at a minimum, those measures you take to protect your own confidential information of a similar nature. The Licensor will not issue any press release or make any other public communication with respect to this Agreement”.
Obligations and rights of the parties
A very recurrent clause in all the agreements but it plays a very vital and is a paramount clause in this agreement. The duties of the Licensor need to be very precise and comprehensive. As most of the subject matter of the agreement would be on the internet and once something is uploaded on the internet as it is not supposed to be it can be havoc. Therefore, the Licensor needs to make sure that while licensing the content it isn’t infringing any third-party claims or violating any intellectual property rights and if rights are violated who will be held liable and what will be the remedy available all needs to be set out in the clause. Also, whether the Licensee can alter or modify the content can it further sub-license, all these issues need to be referred to in this clause.
The consideration will be paid by the Licensee to the Licensor for the License granted to the Licensee( called “License fees”). The clause should define whether the payment will be a flat fee in one go, whether an advance should be paid. This makes one part of the consideration. In some cases for example, if the content provider is an OTT platform, it can demand a royalty/variable fee based on subscription payments made after or before signing the agreement with the Licensee.
Example of consideration
In consideration of the License granted to the Company, the Company shall pay the Content Provider a flat amount of Rs.____- (Rupees _______only) as License Fee (“License Fee”). An amount of Rs. ________/-(Rupees ____ only) will be paid at the time of signing this Agreement. The remaining amount shall be Rs. _______/-(Rupees _only) shall be paid within 30days from the date the Content is released on the Platform. In addition to the License Fee, the Company shall also be required to pay the Content Provider a variable fee of 5% of subscription payments for the Platform made 30 days before and after the date of the Content being released on the Platform.
The termination clause will lay out the event in which the agreement may be terminated and other points like who has the right to terminate the agreement. Some of the common issues for termination are:
1) Termination in even of a material breach
2) Termination for insolvency
3) Termination for convenience
After listing out the conditions for termination and the rights, the effects of termination should be drafted. The Licensor would like to keep the confidential information confidential even after the termination of the agreement or would want to destroy it. Such provisions need to be drafted and should not be missed out.
These are the major clauses of a content license agreement. The remaining boilerplate clauses such as assignment, dispute resolution, indemnity waiver, severability will complete the content license agreement. Everything is taken into account the legal nuances and concepts of the agreement, some things should be kept in mind before signing the agreement.
Precautions while signing the content licensing agreement
1) Minimum performance guarantee
If the Licensor is granting an exclusive license to the Licensee, the revenue of the Licensor would solely depend on the performance of the Licensee. Therefore, it is beneficial for the Licensor to include a minimum guarantee performance clause that will force the Licensee to perform to a certain benchmark, or if not then the Licensor will have the right to terminate the agreement.
2) Term sheet
Certain purely contractual aspects like performance guarantee initially itself because it might have to be discussed furthermore with the particular team or management of the Licensor.
3) Negotiation of business terms
The negotiation of business terms and specifics of the agreement relating to intellectual property should be left to particular professionals involved in that area.
To summarise, the grant of right is the most important and distinct clause in the content license agreement, given that, other clauses such as consideration, term, representation and warranties, obligations, should be drafted with uttermost detail for a smooth and good business deal between the Licensor and Licensee. As we have seen how to draft a content license agreement, it is important to know some of the benefits of entering into a content license agreement.
Advantages of entering into Content Licensing Agreement
1) The licensee would have easier and quicker market access as he/she/it would be utilizing the established intellectual property.
2) The licensee would save the effort of having to pool together and gather resources for the purposes of research and development towards developing his/her/its own products or services.
3) The licensee will be in a position to generate revenue off of the intellectual property of another.
4) Consumers value the removal of the guesswork from their purchase process by reading user reviews and noting the awards and recognitions certain products have received from authoritative publications.
A real-life example of how not having licensed intellectual property and ownership content is of the popular OTT platform Netflix. Although Netflix produces a lot of good shows per year, it has very few shows in which Netflix owns the intellectual property. As a result of the lack of IP-owned hits, in 2019 Netflix stocks fell by 10%.
Therefore, no matter how good ideas you have or how big your position in the market is, owning the content license and having intellectual property rights by entering into a content license agreement can make a big difference.
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