Elastic Path`s contractual obligations were twofold. There was a duty of defence and a duty to compensate. The clause states that “Elastic Path defends or submits any claim or action or action against the licensee, to the extent that such an action, action or proceeding is based on an allegation that one of the software made available to the licensee under this agreement violates (directly or indirectly) a patent […] Elastic Path frees the licensee from and against all these claims and maintains them unscathed and bears all the damages and costs that were finally promised or agreed upon when this claim, action or procedure was settled.” [Added highlight.] Even if there are compensation provisions in the agreement, you must carefully assess how they will be implemented. For example, does the licensee handle legal fees and defend the claim, or does he simply reimburse you once the application is “finally” granted? In the latter case, you can only be compensated once the Court`s final decision has been rendered, which could take years. Each party releases the other party from any claim, means, remedy, damage or claim resulting from a violation of this agreement by the compensated party. Following a third-party infringement action, the dispute between Coastal and Elastic Path finally ended in court to rule on the issue of Elastic Path`s IP compensation obligations. Elastic Path had refused to defend and compensate Coastal. Was Elastic Path allowed to refuse the defence of the infringement claim or was it wrong to refuse? A second twist in this case was a mandatory arbitration clause, triggered when Elastic Path referred the dispute over its compensation obligations to binding arbitration. Do you need help interpreting the legal effect of compensation and what it might mean to you? 3) If you distribute products with licensed technology in other countries, you will not be compensated. Refuse this provision. Make sure your compensation amount covers all the countries in which you want to market your product.
If the licensee refuses, try to negotiate lower fees or even no royalties in countries where your compensation does not apply or where the licensed technology is not patented. B) If you are the licensee, you agree to compensate your licensee in case of injury, especially if you commit a breach of confidentiality or abuse of the product, especially the software. This analysis in Coastal v. Elastic Path shows that the courts will treat an IP compensation clause as a kind of insurance policy. A software provider essentially assumes the role of an insurer who is required to cover this risk by such compensation for the benefit of its customers. In this case, there is a risk of infringement of third-party patents. A few points to remember: first, third-party claims for intellectual property rights that were issued or registered after the date of the software license agreement do not fall within the scope of the exemption. Patents can be issued after the date of the contract, but they have a priority date long before the treaty comes into force. If such a patent forms the basis of a infringement action covering the technology granted, it is excluded from the licensing obligation. Such a restriction should be strongly rejected, as it weakens the licensee`s right to compensation. Before signing a technology licensing agreement, you should carefully consider all provisions, including compensation clauses. Unfortunately, this very important part of a licensing agreement is often treated as a rule.