This document sets forth a sample license agreement whereby the licensor grants an
exclusive license to make, use, sell, and lease specified licensed articles. As drafted,
the licensor warrants they it has title to the licensed patent rights pertaining to a filed
U.S. Patent Application. This form contains standard licensing provisions and can be
modified to reflect the needs of any company seeking to grant a license or of a company
seeking to obtain a license for certain intellectual property or products.
This agreement, which is to become effective _________, _________[date], is made between: _________, a
_________ corporation having a principal office at _________("Licensee"), and _________, residing in
_________(collectively called "Licensors"); and
Witnesseth that, in consideration of the mutual promises made in this agreement, the parties agree as follows:
Article 1 - Definitions
Certain terms used in this agreement shall be defined as follows:
Par 1(a). "Licensed patent rights" shall mean U.S. Patent Application Serial No. _________ for _________, filed
_________, _________[date], in the names of Licensors; any divisions or continuations in whole or in part thereof;
any U.S. or foreign patents or applications that are later added to this license; any patents issuing on any of such
applications; any reissues or extensions or reexaminations of any such patents; and any foreign patent or patent
application corresponding to any of the U.S. patents or patent applications included in the "licensed patent rights."
Par 1(b). "Licensed article" shall mean any article, whether consisting of one or more separate units, made, used or
marketed in any country, that is covered by any unexpired patent, or is covered by one or more claims of a pending
patent application, in that country, which patent or application is part of the "licensed patent rights."
Par 1(c). "Royalty base" shall mean the "net proceeds" of "licensed articles" marketed.
Par 1(d). "Net proceeds" shall mean the total amount of monies received by Licensee for "licensed articles" and not
subsequently refunded or credited, less the sum of the following deductions when applicable: cost of installation; all
taxes and duties paid by Licensee with reference to "licensed articles;" insurance, transportation and special
packaging paid by Licensee; and commissions and fees paid by Licensee to third parties, including but not limited to
manufacturers' representatives; but in any case the total of such deductions shall not exceed fifteen percent of the
total amount of monies received and not subsequently refunded or credited.
Par 1(e). "Subsidiary" shall mean any U.S. or foreign company, at least half the beneficial or controlling interest in
which belongs to another company at the time in question.
Par 1(f). "Competition" shall mean any device whatsoever marketed by a third party, which device is designed for
_________, whether or not such device infringes the "licensed patent rights."
Par 1(g). "_________ purchase order" shall mean a purchase order from a company that is franchised to operate a
Par 1(h). "Undiscounted licensed article" shall mean a "licensed article," the selling price of which is not lower than
the published base price for such articles.
Article 2 - License and Warranty
Par 2(a). Licensors hereby grant, and agree to grant, to Licensee and its "subsidiaries" a worldwide exclusive license
under the "licensed patent rights" to make, use, sell and lease "licensed articles." Subsequent references to Licensee
in this agreement shall apply also to its licensed "subsidiaries."
Par 2(b). Licensors warrant that they have title to the "licensed patent rights" and the right to enter into every term of
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Article 3 - Improvements and Methods
Licensors agree to tender in writing for incorporation into the "licensed patent rights" a like license under any U.S.
or foreign patents or patent applications now or hereafter owned or enjoyed by any or all of the Licensors that claim
any improvement in any invention disclosed in any patent or patent application included in the "licensed patent
rights," or any method or process for manufacturing any such invention. Licensee at its option may accept such
written tender by a written instrument mailed within six months after receipt of tender. Such additional licenses shall
be upon the same terms as this license and shall terminate upon any termination or cancellation of this agreement.
Article 4 - Foreign Filing
Par 4(a). Licensee at its option may file at its own expense in any country a patent application corresponding to any
U.S. patent application included in the "licensed patent rights," except that Licensors shall have the first option to
file such applications in _________; and they are not excluded from filing any patent application in any country
where Licensee elects not to file such application.
Par 4(b). Licensors on request shall promptly execute papers to enable Licensee to file foreign applications as
provided in this article.
Par 4(c). Once Licensee files at its own expense under Par 4(a), it shall thereafter have and retain control over the
resulting application, and any application that is a division or a continuation in whole or in part of that application,
any patent issuing on any such application, and any patent that is a reissue or extension of any such patent until the
expiration of the patent in question or the cancellation or termination of this license agreement, whichever occurs
Par 4(d). Licensee shall give Licensors thirty days written notice prior to abandonment of the maintenance or
prosecution of any foreign patent or application included in the "licensed patent rights," together with sufficient
information to enable Licensors to assume control over it within the notice period, and Licensors shall then be
entitled at their option to assume such control.
Article 5 - Lump Sum and Royalties
Par 5(a). Lump sum. Licensee shall pay to Licensors a lump sum of $_____, which shall not be creditable against
royalties earned on the marketing of "licensed articles." Payment of the lump sum shall be made in three equal
installments of $_____ each, the first to be paid upon the signing of this license agreement, the second to be paid
sixty days after the signing, and the third to be paid one hundred and twenty days after the signing; except that upon
receipt of the first "_________ purchase order" for "licensed articles" the entire balance of the lump sum still unpaid
at that time shall fall due immediately.
Par 5(b). Earned royalties. In addition to the lump sum payment mentioned in Par 5(a) of this agreement, Licensee
shall pay to Licensors, at the times specified in Par 5(g), an earned royalty equal to a percentage, specified in Par
5(e) or Par 5(f), of the "royalty base" of "licensed articles" marketed by Licensee for which payment has been
received. Such royalty shall be earned at the time payment for the relevant "licensed article" is received by Licensee
unless such article is delivered without expectation of payment, in which case an equivalent royalty shall be
Par 5(c). Guaranteed minimum royalty. Subject only to the possibility of cancellation or termination under Article
17, Licensee guarantees that Licensors shall receive at least a minimum of $_____ in royalties in the event that a
lesser amount of royalties is earned on the marketing of "licensed articles" under Par 5(b). Except for the guaranteed
minimum royalty, no further earned royalty payments under Par 5(b) shall be guaranteed. No royalties mentioned in
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Par 5(b) shall be due on the marketing of "licensed articles" in the United States or foreign countries except to the
extent that the total of such royalties earned during the entire life of this license exceeds the guaranteed minimum
Par 5(d). Time of payment of guaranteed minimum royalty. So long as no "competition" has appeared and
Licensee's selling price of "undiscounted licensed articles" remains above $_____, the guaranteed minimum royalty
of Par 5(c) shall be paid in annual installments of $_____ each, one such installment being payable within two
months after each of the first five anniversaries of the effective date of this license agreement. After "competition"
appears, or during any time when Licensee's selling price of "undiscounted licensed articles" is reduced to $_____ or
less, the guaranteed minimum royalty or any unpaid balance of it shall be paid in annual installments of $_____
each, one such installment being payable within two months after each anniversary of the effective date of this
license agreement for as many years as required until the guaranteed minimum royalty has been satisfied.
Par 5(e). Earned royalty rates in the United States.
(1). For the purpose of computing royalties earned under Par 5(b) during a time when there is no "competition" and
licensee's selling price of "undiscounted licensed articles" remains above $_____, the royalty rate used shall be
_________ percent of the "royalty base" of "licensed articles" marketed in the United States as to all royalties earned
on sales agreed on up to the expiration of five years from the effective date of this license agreement.
(2). For the purpose of computing royalties under Par 5(b) on sales agreed on during a time when there is
"competition" or when Licensee's selling price of "undiscounted licensed articles" is reduced to $_____ or lower, the
royalty rate used shall be _________ percent of the "royalty base" of "licensed articles" marketed in the United
States, at least as to royalties earned on sales agreed on up to the expiration of five years from the effective date of
this license agreement, and if earned royalties accrued up to that time do not at least equal the guaranteed minimum
royalty mentioned in Par 5(c), then the _________ percent royalty rate shall continue in effect in the United States
until the earned royalties accrued do equal the guaranteed minimum royalty.
(3). For the purpose of computing royalties earned after subparagraph (1) and (2) of this Par 5(e) are both no longer
applicable, the royalty rates applicable to "licensed articles" marketed in the United States shall be: _________
percent of the "royalty base" as to royalties earned on sales agreed on during a time when there is no "competition"
and Licensee's selling price of "undiscounted licensed articles" remains above $_____; and _________ percent of
the "royalty base" as to royalties earned on sales agreed on during a time when there is "competition" or Licensee's
selling price of "undiscounted licensed articles" is reduced to $_____ or lower.
Par 5(f). Earned royalty rates in foreign countries. The royalty rate applicable to marketing of "licensed articles" in
foreign countries shall be:
(1). _________ percent of the "royalty base" as to "licensed articles" marketed in any foreign country except
_________ in which there is at least one unexpired patent or pending application that licensors control under Pars
4(a) or (d) at the time the royalty is earned, which patent or application covers such articles and is then included in
the "licensed patent rights," provided the royalty is earned at a time when the royalty rate in the United States is
governed by subparagraphs (1) or (2) of Par 5(e); and
(2). _________ percent of the "royalty base" as to "licensed articles" that are either marketed in any foreign country
except _________ where the only unexpired patents or pending applications that cover such articles and are
included in the "licensed patent rights" are not controlled by licensors under Pars 4(a) or (d) at the time the royalty is
earned; or the royalty for which is earned at a time when the royalty rate in the United States is governed by
subparagraph (3) of Par 5(e).
(3). As to _________[country] the royalty rates shall be _________ and _________ percent under the conditions
specified in subparagraphs (1) and (2) respectively of this Par 5(f).
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Par 5(g). Time of payment.
(1). All royalties in excess of the guaranteed minimum royalty mentioned in Par 5(c) earned on the marketing of
"licensed articles" during the first five years of this license agreement shall be reported but not paid until the sixth
anniversary of the effective date of this license. Within two months after the sixth anniversary, all royalties that have
accrued but have not been paid shall be paid to Licensors in a lump sum.
(2). Guaranteed minimum royalty installments for any year, and all royalties earned on the marketing of "licensed
articles" during the sixth and subsequent years of this license agreement, shall be paid by Licensee within two
months after the end of the relevant year.
Par 5(h). Unpatented articles. No royalty shall be earned on the marketing of any article in any country unless at the
time such royalty is earned such article is covered by an unexpired patent or pending application in that country,
which patent or application is included in the "licensed patent rights."
Par 5(i). Pending applications. No royalty shall be earned under Par 5(b) on the marketing of "licensed articles"
covered solely by a claim of any pending patent application after the fourth anniversary of the filing date of that
application until that application matures into a patent, and then not retroactively.
Par 5(j). _________Corporation. No royalty shall be earned on any sales to _________ or its "subsidiaries" or their
successors in interest.
Par 5(k). Infringement. If any claim of any patent included in the "licensed patent rights" is infringed by any third
party, and the number of infringing units sold in the country of that patent equals at least one fourth the number of
"licensed articles" sold in that country by Licensee during any normal three month period, then thereafter no royalty
shall be earned based on marketing in that country until the infringement is enjoined or otherwise terminated.
Par 5(l). Ancillary sales. No royalty shall be earned on the sale of _________ or spare parts for "licensed articles."
Par 5(m). Leasing. If "licensed articles" are marketed by Licensee on a lease basis, all the provisions of this
agreement shall apply, except that: the selling price figures used for the purpose of computing royalty rates and the
size of the guaranteed minimum royalty installments under this agreement shall be converted, so far as each lease
transaction is concerned, to comparable figures based on the table of relationships between sales prices and lease
prices actually used by Licensee to compute the lease price applicable to the lease transaction in question; and
royalties under Par 5(b) shall be earned on each lease installment at the time it is received by Licensee.
Article 6 - Reporting and Audit
Licensee shall keep accurate books of account containing all information necessary to establish the amount payable
as royalty under this agreement. Such books of account shall be kept at one of Licensee's principal places of
business and shall be open, for three years following the close of the calendar year to which they pertain, to
inspection and audit by an independent certified public accountant who is nominated by Licensors and to whom
Licensee has no reasonable objection. Such inspection and audit shall take place no more than once each year and
shall be confined to verification of the royalties due, and the accountant shall disclose to Licensors only whether the
Licensee's reports and payments are accurate or not, and if not accurate shall specify the inaccuracies therein. Each
payment of royalties shall be accompanied by a written report signed by the individual who prepared the report and
by an officer of Licensee, showing the computation of royalties.
Article 7 - No Duplicate Royalties
Only one royalty shall be due for any one "licensed article" made or marketed anywhere in the world.
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Article 8 - Infringement
Par 8(a). Who shall sue. Upon learning of any infringement by any third party of any claim of any issue patent
included within the "licensed patent rights," licensee shall promptly notify Licensors in writing of such
infringement, giving details of the infringement. Licensors and Licensee both shall have the option either alone or
jointly to take such measures as may be required to terminate any infringement. When either party brings an
infringement suit, the other party may join as plaintiff and shall cooperate and assist in the preparation and
prosecution of the suit.
Par 8(b). Expenses and recoveries. In the case of mutual agreement on the institution of an infringement suit,
Licensee shall bear one half and Licensors collectively shall bear one half of all expenses unless one party declines
to participate financially in the prosecution of such infringement suit, in which case the party declining to participate
shall be excluded from bearing a part of such expenses. In the case of such mutual agreement on the institution of an
infringement suit, Licensee shall have one half and Licensors collectively shall have one half of all damages and
penalties recovered that remain after first reimbursing Licensee and then Licensors for any amounts expended by
them in prosecuting such infringement suit and next reimbursing Licensors for royalties that they would have earned
but for the suspension of royalty payments under Par 5(k) during the period of infringement. If one party declines to
participate financially in the prosecution of such infringement suit, the party shall be excluded from any share of the
damages and penalties recovered.
Article 9 - Adverse Decisions
Par 9(a). Effect. If any claim of any patent included in the "licensed patent rights" is held invalid, awarded to
another, or held not infringed, by a decision of any tribunal of competent jurisdiction, which decision is not or
cannot be thereafter reversed, then with respect to any such claim so held not infringed, the construction placed upon
such claim by such tribunal shall be followed from the date of entry of the opinion on such question of infringement,
and with respect to any claim that is not infringed, not valid, or not the property of Licensors under such decision,
Licensee shall thereafter be relieved from the payment of royalties solely with respect to such claim, and from
including in its reports hereunder any equipment covered solely by such claim; provided, however, that if there are
conflicting final decisions by courts of equal jurisdiction, the one of latest date shall be controlling.
Par 9(b). Contrary decision. In the event of a decision of a tribunal terminating royalty liability followed by a
decision of a tribunal that revives royalty liability, no royalty shall be payable for the period between the two
Article 10 - Best Efforts
Licensee shall use its best efforts to maximize the number of "licensed articles" sold and to maximize the selling
price and "royalty base" of each such "licensed article."
Article 11 - Sublicenses
Licensee shall have the right to grant exclusive or nonexclusive sublicenses within the scope of this license in any
country upon such terms and conditions as Licensee deems appropriate. Licensee agrees that one half of all royalties
received from its sublicensees will be paid to Licensors, except that as to any sublicensee that is a licensed
"subsidiary," Licensors shall be entitled to receive the same royalties as if the sublicensee were the direct Licensee.
Licensors' share of sublicense royalties shall be included in the reports and payments referred to in Par 5(g) and
Article 6 and shall be counted toward the fulfillment of the guaranteed minimum royalty under this agreement.
Article 12 - Successors and Assigns
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This agreement shall bind, and inure to the benefit of, each of the parties, and their respective successors in interest
Article 13 - Information Concerning Licensed Patent Rights
Par 13(a). Inspection. Licensors hereby grant, and agree to grant, to Licensee and its duly authorized agents, under
37 CFR §1.14(a) and comparable rules of foreign patent practice, a power of inspection of all U.S. and foreign
patent applications included in the "licensed patent rights," and Licensors further agree to execute and deliver to
Licensee such further documents as may be requested to carry out the intent of this provision.
Par 13(b). Information. The parties agree to keep each other fully informed of the progress of the prosecution of all
U.S. and foreign applications that are included in the "licensed patent rights."
Par 13(c). Notification. Licensee shall not be liable for any royalty under any claim of any patent or application in
any country until after having actual notice of the filing, issuance or acquisition of such patent or application.
Article 14 - Notices, Communications, Payments
Licensee may send all notices and reports and other communications and may make all payments under this license
to _________, or to h— successor designated in a written communication. Licensors may send all notices, tenders,
and other communications to _________. All notices and other communications mentioned in this agreement,
including royalty payments, may be mailed postpaid to the last known address of the designated individual. All
notice periods and other times for taking any action mentioned in this license shall start on the day that such notice
or other communication is actually mailed.
Article 15 - Choice of Law
This agreement and any disputes arising under it shall be governed by the law of the State of _________.
Article 16 - Alterations
This agreement cannot be altered except by an instrument in writing signed by an authorized officer of the Licensee
and an authorized representative of the Licensors.
Article 17 - Term and Termination
Par 17(a). This agreement and the license granted by it shall terminate upon the earliest occurring of the following
(1) Ninety days written notice by either party that the other party has committed a substantial breach of this
agreement, specifying such breach, and such breach is not cured within the ninety days; or,
(2) Expiration of the last to expire of all the U.S. and foreign patents included within the "licensed patent rights,"
and there are no longer any pending U.S. or foreign patent applications included within the "licensed patent rights."
Par 17(b). Licensee may cancel this license upon thirty days written notice to Licensors, to take effect at any time;
and such cancellation shall relieve Licensee of liability for any minimum royalty installment for the license year in
which such cancellation takes effect and all subsequent years, but such cancellation shall not relieve licensee of
liability for the $_____ lump sum mentioned in Par 5(a) or for any royalties earned prior to the effective date of such
cancellation in excess of any guaranteed minimum royalty installments already paid.
Par 17(c). Following any cancellation or other termination of this agreement, Licensee at its option shall be entitled
to a license limited to all "licensed articles" then on hand and all "licensed articles" that Licensee can manufacture
with materials then on hand that were specifically purchased for the purpose of manufacturing "licensed articles,"
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and may pay the same royalty rate with respect to such articles as that which would have been due if this agreement
had remained in effect, but no other royalties shall be earned after cancellation or termination.
Par 17(d). All payments properly made and all royalties earned prior to the effective cancellation or termination date
shall belong to Licensors.
Par 17(e). After any cancellation or termination of this license agreement, the "licensed patent rights" shall revert to
Article 18 - Consultations
Licensors shall make themselves available, upon request of the Licensee, at the earliest opportunity consistent with
the responsibilities of their employment, to consult with Licensee at one of the Licensee's places of business at no
charge to Licensee except that the latter shall reimburse Licensors for travel expenses and reasonable expenditures
for food and lodging.
In witness whereof, the parties have executed this agreement by affixing respectively their individual signatures and
the signature of a duly authorized Officer of Licensee, as of the effective date mentioned above.
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