The ins and outs of license agreements

  • By:Kelvin Wibawa
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Having your Intellectual Property registered on your behalf grants you the exclusive right to use it in trade and commerce. However, as your mark, design or patent grows in popularity, using it might become an interesting possibility for parties willing to pay for it. Such use can be arranged by the establishment of a License Agreement, in which you state to allow a third party to use your Intellectual Property. Learn more about the possibilities and limits such Agreements offer to both you and your counterparty.

General freedom of contract

Unless perhaps one wants to license your Intellectual Property to his own company, rightsholders often want something in return for granting other parties the use of their Marks, Copyrights or Industrial Designs. Luckily the law leaves plenty of space for this. Article 1320 of the Indonesian Civil Code provides for wide freedom of contract, which makes all terms and conditions recorded in a contract legally binding to its signatories as long as they comply with four basic principles. For starters, all signatories must express their agreement in becoming bound to the terms and conditions in the contract and must be legally able to do so (e.g. they can not be minors or having severe mental disabilities). On top of that, the rules set in the contract must have a certain objective. Fourth and last, parties can not formulate any terms and conditions being contradictory to the law, as such are considered null and void.

The basic principles one can arrange through License Agreements

The core of a License Agreement forms the statement of a rightsholder to allow for the use of his Intellectual Property by another party. This is recorded in Law 20/2016 about Trademarks, Art. 42, Law 28/2014 about Copyrights, Art. 81 and Law 31/2000 about Industrial Designs, Art. 33.

The freedom of contract provided by the Civil Code provides for the possibility to ask license holders for something in return. This could be – and is often – a (periodical) payment but could also come in another form permitted by law. While receiving such benefits the rightsholder can still make use of the Intellectual Property he licensed to another party as well, unless both parties agreed otherwise. For Trademarks, this is recorded in Law 20/2016, Art. 43; for Copyrights in Law 28/2014, Art. 81; and for Industrial Designs in Law 31/2000, Art. 34.

Though often not specifically regulated, the general freedom of contract allows for provisions about the period the License Agreement will be in force. Licensor and licensee can also agree upon limitations to specific cities or regions within Indonesia where the license will be valid. Many contracts also contain articles about dispute settlement, and License Agreements are no different in this regard. Both parties could, for example, agree to settle their arguments through mediation or to file a case with the Commercial Court of a specific region.

As holders of Trademarks, Copyrights, and Industrial Designs are only granted the rights over their Intellectual Property for a limited amount of time, licenses granted for the use of this Intellectual Property ceases to be valid from the day the protective rights of the Trademark, Copyright or Industrial Design end.

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The necessity of arranging a closing License Agreement

Written agreements offer both signatories a detailed guideline about what they are entitled to and what they have to grant in return. As business deals often include information such as amounts of money or periods of time, it is recommended to have these details recorded somewhere to avoid misunderstandings – even if both parties concerned have no bad intentions. If contracts, however, would merely serve as reminders, signing them would be unnecessary. A signature under a contract equals a declaration of the signer, in which he promises to act in accordance with everything stipulated in the agreement. This makes someone’s signature under a contract a relatively strong piece of proof he accepted the rights and responsibilities as set in the agreement.

Not all signed agreements, however, hold the same value in court. Property Deeds, for example, must be registered with a PPAT or Land Deed Official, and the company’s Deeds of Establishments have to be drafted in front of a notary. In order to ‘upgrade’ the legal strength of a signed License Agreement for Intellectual Property, one should have it registered with the Directorate General of Intellectual Property (DGIP). This requirement is set in Law 20/2016, Art. 42 for Trademarks; in Law 28/2014, Art. 83 for Copyrights; and in Law 31/2000, Art. 35 for Industrial Designs.

As all three legal provisions mentioned above clearly state it is obligated to have License Agreements registered with the DGIP, one can argue an unregistered License Agreements hold little power as evidence in case of disputes – if any power at all. It is also worth mentioning that unregistered License Agreements do not have any legal consequences for third parties (Law 20/2016, Art. 42 for Trademarks, Law 28/2014; Art. 83 for Copyrights; and Law 31/2000, Art. 35 for Industrial Designs).

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