License Grant Language: How Should it be Drafted?

2 Comments Written by on August 21, 2008 | Posted in IP Licensing Deals, License Drafting, Software Licensing, Technology Transactions

Ken Adams at Adams Drafting raised an interesting question about the proper drafting of a license grant in a software license. In particular, Adams questions the drafting of the following clause:

Acme hereby grants Widgetco a nonexclusive, perpetual, irrevocable, royalty-free, fully paid-up, worldwide license to the Software (that license, the “License“).

I agree with Adams that this grant is not particularly well-drafted; however, I differ from him a bit on why I think it is not a well-drafted clause.

Regarding the strings of adjectives, this is just how licenses are drafted. A well-drafted license grant has to convey a series of information, and the best way to convey that information is through the “strings of adjectives” format, which is why IP attorneys have adopted that drafting method for license agreements.

Having said this, Adams is correct in stating that some of these adjectives are unnecessary. I would argue that the adjectives “perpetual,” “irrevocable,” and “fully paid-up” are completely unnecessary to include in the granting clause for the majority of license agreements. The term of the Agreement can and should be dealt with in the term section of the Agreement, and the fact that the royalty is or isn’t paid off can be dealt with in the payments section of the Agreement. The term “royalty free” is likely unnecessary as well, assuming that some form of payment is due under the agreement; however, if absolutely no payment is due under the license, it would be appropriate and expected to include the term “royalty free” in the license grant rather than spelling out this fact elsewhere in the Agreement.

So, what is actually necessary?

Well, the term “nonexclusive” is critical. Licenses are either exclusive or non-exclusive, and a well-drafted license will identify which type of license you are dealing with in the license grant clause. I disagree with Adams regarding his comments on this term; the distinction between an “exclusive” and a “nonexclusive” license is well-understood by IP professionals and does not require further explanation in the license grant.

In addition, the geographic scope of the license is critical and needs to be identified, if the territory of the license is not defined elsewhere in the Agreement. Typically, if the territory is worldwide, this would be identified in the license grant rather than in a separate clause of the agreement. If the territory is something less than worldwide, then it would be appropriate to just use the term “Territory” in the license grant and to define that term elsewhere in the Agreement.

What Adams fails to mention in his posting, however, is that the phrase “license to the Software” is poorly drafted because it does not define the scope of the license to the Software. The grant clause should define exactly what constitutes the scope of the license. Can the licensee grant sublicenses to the Software? Can the licensee distribute the Software? Can the licensee manufacture the Software? You get the picture. . . . The license grant needs to spell out what exactly constitutes a license to the Software. If it fails to do so, then it is poorly drafted.

In summary, I agree with some of the criticism raised by Adams regarding this license grant. It is wordier than necessary. At the same time, there are some critical elements of a license grant that are clearly missing from the clause, and these omissions are what concern me most about the specific clause identified by Adams in his posting.

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2 comments...What do you think?

  1. Posted by Mark Radcliffe 25th August, 2008 at 2:17 pm

    I agree that it is poorly drafted. It is also missing the nature of the intellectual property being licensed (i.e. copyrights are the general focus, but what about patents?). It is also not clear if the software can be used by subsidiaries of the Licensee or outsourced vendors.

  2. Posted by Kristie Prinz 25th August, 2008 at 2:46 pm

    I agree, Mark, that there is some additional information that could have been addressed in the grant clause, beyond what I mentioned in my posting. Certainly the nature of the IP being licensed and the issue of whether there are certain third parties who can use the software must be addressed in the agreement, in order to define the scope of the license. Thanks for your feedback.

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