Economic and Legal Aspects of License Agreement

Giorgi Chiladze, Assistant Professor, Ilia Chavchavadze State University

In case of patent existence on the invention economic and legal issues of the agreement while issuing license has not been defined at the present stage.

Namely, different conceptions are presented in legal and economic working books related to license agreements and in court. The license agreements cover: 1. purchasing 2. Hire 3.rent 4. leasing or 5. partnership agreement
Obligation authorizes the creditor (licenser) to demand from the debtor (licentiate) the fulfillment of certain action. The Fulfilling may be expressed in avoiding of action. With the content and disposition of license agreement determining, it may oblige each side special responsibility towards property and rights of other side.
For appearing of obligations agreement between licenser and licentiate is necessary. Right for receiving information way acquired following the License agreement (for example, information on know –how).
Information providing should be maintained when it has an importance for defining license agreement and contractor is able to give out the information without violating own rights. Expanses for providing information should be covered by the recipient.
We believe, that patent license agreement is not the subject of independent, certain agreement, but collective name if different forms of patent`s use, on the background of license, when any patent owner not loses tight of ownership on the patent.
This statement is based on Civil Code of Georgia (CCG). According to which license acknowledges several principles of duties of action and agreement freedom. To say exactly, law subject may freely make agreement under law frames, and define content of the agreement. They are capable make agreement (license agreement), not determined by law, but not opposing it.
According to established international practice, license occupies top place on the markets as a rule. Meanwhile, it` s charged making agreement in the sphere of this dealing (selling licenses). It has not right to suggest contrahent unequal conditions without background (article 310, point 2).
License agreement considered to be made, when sides agree on all conditions and forms. Conditions of license agreement considered to be essential, when demanded by one of sides agreement will be reached, or which are considered to be essential by law. By license agreement may be created engagement of future agreement making. Form of the next agreement is the same as previous one.
License agreement presents to be especial type of agreement not to be directly regulated by acting law of Georgia. It might be intended to mixed type of agreement. While such sort of agreement explanation, closest and most correspondence norms of agreement to essence and its realizing should be taken into consideration.
Let`s discuss all the above mentioned types of agreements.
License agreement might not be intended to deed to purchasing agreement, because duties imposed to licenser include assignation right of property to licentiate not in full form but partly. Briefly to say, to assign just right of use.
According to Georgia`s Civil Code, article No:447 “By agreement of deed of purchasing, seller possesses duty assign buyer right of property on belongings, all related documentations and deliver goods. Buyer possesses duty to pay agreed price and receive purchased goods”.
Bu classical understanding, license agreement will not be mentioned as deed of purchasing agreement, because it can not be realized under standard form of Civil Code of Georgia, article No 482, including occasional death of goods risk transmitting –“Risk of goods occasionally death or spoiling transmits on the buyer immediately after its selling, if the sides did not agree on any other conditions. If seller sends goods to other place, by requirement of buyer, risk of occasionally death of spoiling of goods transmits on buyer immediately as he (she) receives it from responsible individual”.
Moreover, Civil Code of Georgia has no importance for license agreement when talking about goods selling for several individuals. The article says:” If seller sold goods to several buyers, advantageous assigned to the buyer, being the first to by goods, but if goods was transmitted to no one, the advantageous assigned to the individual being first to make agreement. So, licenser has right licenses selling to the licensers (number of them is not limited), that time no one buyer will have advantages”.
In the case of total rights plenipotentiary separation, unable to talk about its selling, because important plenipotentiary left to licenser, or assigned to third individual on the background of license.
When licenser`s right exhausts on use of patent after assigning of several licenses, it remains patent ownership right. While deed of purchasing agreement making, buyer becomes owner, what means assignation of economy –law title.
Differently from deed of purchasing agreement, license agreement presents to be not exchange relationship, realization of which is as a rule related to fulfilling of economy –law duties, but is determined period of time, or relationship by current engagements, while whole term of patent`s action.
License agreement becomes likening to rent agreement. According to Civil Code of Georgia, article No 531, “by agreement on rent, renter possesses duty assign property to the tenant for determined term. Tenant possesses duty to pay renter agreed on amount of money”.
License agreement should not be considered as rent agreement, because, according to Civil Code of Georgia, renting is directly realized on things and not rights. That ` s why obliging licenser with responsibilities for property “normal wear out” (article 547) or “current repair expanses” (article 548) is meaningless.
Civil Code of Georgia, 4th chapter, is devoted to lising agreement. From one view there is likeness between license agreement and lising. Civil Code of Georgia, article No 576 defines conception and content of lising –“Lising agreement deliverer posses duty of assignation of defined property for agreed on term to lising recipient. Lising recipient possesses duty make payments by determined periodical. Lising deliverer should make or purchase property determined by agreement.
License agreement differs from lising agreement, because meaningless are engagements, imposed to lising recipient. Recipient might be imposed duty of right, to purchase subject or rent it after agreement deadline out, it whole amortization of agreement ` s subject is not finalizing.
When calculating final value, fact of amortization should be determined in every occasion. If agreement is not including correspondence regulations, lising recipient is plenipotentiary to purchase subject of lising.
License agreement likening lising agreement by form. Both agreements are written on paper including: 1. total price; 2.payment amount and terms; 3. final payment, but in the case of agreement fulfilling before deadline –rule of its calculating.
International trade policy knows type of agreement –friend agreement. Civil Code of Georgia, article No: 339, acknowledges taken into consideration trade habits and traditions while agreement sides plenipotentiary and duties definition. Though, we believe, that license agreement should not be intended to friendship agreement category, because the last one should include additional agreements, besides doing payments instead of rights confirmation. While using friendship agreement, turning importance bears duties of the sides on common goal achievement, under the frames of license agreement sides as a rule have inter –opposite interests.
All these do not concerns to lessee agreement, because it might be license giving out of patent license. But under the frames of lessee agreement, the same subject is not able to be assigned to different individuals to be economically independent from each other. Besides, according to legislation of Georgia, lessee agreement, differently from patent license, has subject character. But top issue is that, while license assigning, just use of right is assigned, but property right remains to licenser. At this time long term economy –law relationship are created between licenser and licentiate.
According to Civil Code of Georgia, article 581, “with lessee agreement leaseholder is responsible assign determined property to temporary use and during lessee time, supply productivity of receiving opportunity, if it is tog by right economics way.
Leaseholder is responsible to pay renter agreed on price. Lessee price might be defined as money as well as nature. The sides may agree on other sort of lessee payment form. Rules of rent agreements as used while lessee agreement making, if there are not some other different articles in articles 581 –606 on the Civil Code of Georgia.
According to Civil Code of Georgia, article No: 587, property giving out is capable by sub –lessee, realizing just in the case of manager`s agreement. Leaseholder is responsible for other way property using by sub –lesser or renter. Leaseholder may directly interrupt other way of property using by sub –lesser of renter.
One can may conclusion, that patent license agreement is most close to lessee agreement. Clear fact of which is similar result achievement possibility while exact issues discussion, but license agreement presents to be especial type of agreement.
As up till today, creation of common basic principle towards license agreement by law practice was unable, just “flowing agreement relationship economic nature” attempt of correspondence norms formulation may bring us to unclearness.
While license agreement making, the sides should attempt forming regulations of agreement clearly, write way and –differently from ordinary trade arrangement form, while own will expression –should not relay on just word agreement.
In practice of several countries, while license agreement making between citizen and foreign partner, law obliges both sides obligatory presenting the agreement to federal authority branch. National juridical systems might include especial rules of agreement forms, for example appointment of obligatory of agreement to be liked by competent state branch, economic- statistical calculations and other dates attachment, or its obligatory registration at public register agency. Payment amount and rule of the payment is essential in agreement. It` s increasable, that payment volume determination in practice is too hard, because it is influenced by frames of license use, selling volume, creation measures, market conjuncture, level of techniques` development, selling conditions, sort of collaboration with partners and other factors.
In this type of agreements, definition of the price is unable by use of some solid formulation, because hard issue is not just calculation of separate factors, but definition of their inter- relationship. Calculating formulas might be used for base point specialists. Analogical conclusion fellows from law practice of correspondence countries.
License volume not determines tax obligation of licenser. If agreement do not includes taxpaying exact amount, license payments, as a rule, include pre cents from circulation, at average 0,3-10%. Meanwhile, according to current statistics, approximately 65 % of agreements include remittance by per cents of circulation. Thirteen from one hundred license arrangements provided by one times reimburse, but juts 4% of licenses reimbursed in per cents from profit. Eighteen from one hundred license agreements deadline as rule includes five or more years (long –term).
License agreement should include acting norm regulate positions. It should include following: exact description of the sphere, exact tools of use, term and territory (under the bounds of which rights are assigned), volume of honorary (or rule of honorary definition), its payment rule and term, also other conditions to be believed essential by the sides.
Let`s concern positive procedure of agreement. As a rule, license agreement is made –without any changes or additions, –with proposal of participation in agreement and its acceptation by other side.
The procedure covers moment of will expression and directed to relationship appearing, changing or interrupting. It is in complete coincident with civil code.
Issue of standard conditions of agreement is essential for license agreement. Which are preliminary form, determined for multi using conditions, one side (offering) of which regulated rules to other side for regulation of other conditions being different from law norms. Licenser and licentiate often define conditions of license agreement in details, what is standard for agreement.
In license agreement, agreed on conditions by sides have advantageous force comparing with standard conditions. This last one becomes component of made agreement when offering side (licenser) makes prescription on the top of agreement and appoints on the conditions, but other side of license agreement (licentiate) has opportunity to introduce conditions of the content and appreciate them in the case of agreement.
Normative acts of economic profile often do not include compulsory norms on forms of agreement, un- fulfilling of which may provoke its failure. The sides able to made oral agreement.
Acting norms regulate agreement ` s standard norms regulation. According to Civil Code of Georgia, article No: 347, standard conditions of agreement, used by offer side towards physical entitles, not being involved in industry business, are believed to be failed: regulation, which`s accepting or rejecting of conditions and too durable or obviously short –term conditions are purposed by offering side.
Especial problems are crated when office is identical or almost identical, which is competent capacity to appreciate an agreement, and the office which is plenipotentiary to appreciate or not appreciate an agreement. This takes place in the countries where the industry business is run by the authority. If because of any reason, state industry will express wish to come out of agreement, it will be required just rejecting contract. Following of these, one should not rely on no obligatory of licentiate to gain from the state branches agreement and neither conscientious. We obligatory should try to hasten procedure of agreement` s enforcing, and gain correspondence rights for necessary information getting.
Let`s concern agreement`s failure issue. It`s known that condition of agreement`s failure, limiting right of author, to create composition on determined theme or in determined field, preliminary agree of reject to be reimbursed. Subject of agreement should not be rejection of economy profit.
Following of patent especial right might be presented as individual agreement between the authority (exact instance) and inventor. According to Georgia law on patent, article No: 3 about invention, patent is given on useful model and industry pattern, which confirms authorship and confirms patent owner especial right on invention, useful model or industry pattern. Patent in that case is discussed as one of the sorts of payment to inventor for the bit he made for welfare of the society. Such sort of agreement is useful for both sides: inventor monopolistically and guaranteed starts inventing process, and is capable industry business providing, but approached technical result becomes accessible for whole society.
Of course, such sort of attitude should not be considered as strict and requires to be corrected from the side of forma- economy view. To say exactly, the authority has not right to reject making an agreement and become obliged giving out patent on invention, by all requirements of law. It mentions, that the authority has not right unilaterally rejecting the agreement and establish un-justied economic limits to patent owner. Law on agreement rives right of rejection one of the sides, if determined conditions in the agreement are breaching by other part. The conditions are determined by acting legislation. Besides, legislation includes norms on rejection of patent giving out or its interruption before deadline finalization, because of patent agreement un-payment by patent owner.
For given occasion, “element of especial right” establishing is necessary. Especial rights, based on prohibiting function, gives possibility of suppression patent invention use including economy profit receiving possibility by third side.
According to Georgia`s law on patent, article No: 20, on created invention, useful model or industry profit, related to fulfilling by job duty or special order, right on patent receiving has employer, if there are not any complementary conditions in the agreement. If patent destined to employer, employee has right receive complementary reimburse in the case of invention use, on the background of inter – agreement. If invention, useful model or industry pattern creation is not related to job or special duty fulfilling by employee, right of patent receiving destined to employee. Form the application presenting day, employer has advantageous right of license and patent purchasing. If invention, useful model, industry pattern crated by order of the authority or agreement made between organizations, patent receiving right and reimburse issue should be defined according conditions.
While other way reproduction of edition or work, honorary is defined with fixed payment, but the agreement should include defined maximal circulation of work. Fixed amount may provide definition of determined payments by license agreement. In both occasions, both sides are interests with details of price creation gear and diapason of their changing, because too high prices may negatively influence on selling of production and importantly reduce incomes. Too low prices may negatively influence on competitive capacity of licentiate. Agreement on fixed prices might be realized by designation of defined number or per cent, also maximal and minimal prices.
Georgia`s law, chapter No 3 includes definition of limiting of property rights and authorship and contiguous rights. The law permits reproducing of released works by physical individuals just for personal profit, without agreement and reimburse of author or authorship right having other owner.
Honorary money collecting and separation is provided by one of the organizations appealing to property rights of authors, executors, phonogram makers on collective base. If the agreement do not includes other conditions, honorary is following way separating: 14 per cent –to authors, 30 per cent to executors, and 30 per cent to phonogram makers. Amount of honorary and rule of payment defined from the one side between producers and importers, and from the other flip, with the agreement of one of organizations, which on the collective base handles over property rights of authors, executors and phonogram makers. If the agreement will not be able to be reached between the sides, volume of honorary determined by state agency for authorship and contiguous rights. Honorary is separated among authors, author and contiguous rights and other owners.
Agreement should be written form; oral form of agreement is just made for periodical printing editions, also for one- time reporting of oral work by TV channels and radio stations.
If economy –law issues were not able to be agreed by the sides, and decision making process became hard, established common norms no international law will be used for the resolve of the problem.
Incredible that, there is general principles of norms selecting used in the sphere of obligation law norm and authorship -license agreement, accordance of which economy –juridical norms of the country should be used, which ` s representative (partner) is realizing an agreement. While license agreement making, law of that country is used, where license starts action.
The issue will be resolved other way if license starts acting on several territories together, according to agreement. It` s obvious, one may think that the agreement will submit to all countries ` norms.
Using norms of several countries together, may provoke condition, as for example, an agreement is annulled in one country, but at the same time in action at another. So, agreement should be submitted to the economy –juridical norms of one exact country.
According to Georgia`s law, article 4 and 8, on international private law, April 20, 1998, while use of norms of foreign countries, court of Georgia takes necessary measures for ascertainment of its gist, with foresee of their official explanations, practice of use and doctrine in correspondence courtiers. If ascertainment of foreign country` s gist will be resultless or requires unjustied expanses, but no one side is able ascertain the norms and substation of their use, court uses economy – juridical norms of Georgia.
Appointing of the norms of other countries mean use of this county` s international economy law, if it is not opposing conception of appointment, and if this appointment do not means use of norms just related to exact issue. If the sides may select law of one or other country, the selection means use of norms related on exact issue.
All these faces existence of distinct uncertainty, concerning which one economy –juridical norm will be used in agreement made with foreign partner. Practice faces, that if the choice will be made on the norms of foreign country, Georgia will be turned out in negative condition, because getting the information of foreign law is too hard.
Incredible is that in many developing countries, there is limiting trend of no norms selection freedom, related to use of top technologies in the sphere and existed relationship.
Juridical, process and material norms of patents, industry patterns and commodity signs assignation, as a rule is impartial sort, in that case will expression of the sides is actually limited.
Text of agreement made with partners formed in English. Sometimes partner insists on text variants in both languages, including home language. Basic text should be outlined.
License agreement freedom principle is optimal, so 0called “perfect” for competitive market, or for the market, where number of sellers and paying capable sellers is too high.
Georgia`s science- technical production market is too far from given perfect model, because limited number of commodity purchasers decisively influence on conditions of arrangement. Meanwhile, strong monopoly from the side of the authority and financial resources deficit for market`s dynamic equilibrium keeping is felt.
In such sort of condition, accordance balance is impossible between agreement renters and fulfilling capacity and interests. Renter of correspondence agreement, as a rule, demands especial property rights assignation on any intellectual property objects, not depending if the objects are related to the profile of the business and what perspectives may have in the future.