To licence or not to licence – the most pertinent question is how?

Imagine you are the breeder of a fine new raspberry variety. Naturally, you would like your new product to become a market winner. But there are many steps you must follow to turn your ideas into a fruitful product, and it is impossible to do everything yourself.

The market potential of the raspberry variety looks very promising. Still, it needs to pass through four stages in its life cycle. After completing the breeding process, the variety must undergo extensive trialling. Then, the raspberry plants must be propagated and grown.

In the most ideal situation, a massive crowd of growers will be lining up to buy the raspberry starter plants and harvest its tasty fruits in due time. Subsequently, the fruits must be brought to the market and sold through different distribution channels.

TEAMING UP WITH EXPERTS IS FRUITFUL

You may excel in plant breeding, but you may not be as good at all the other activities that need to be undertaken following the product’s launch. Most probably, others are better at doing certain things. Teaming up with these experts is fruitful.

This is the number one reason why plant varieties are being licensed.

As a breeder licensing his variety, you are licensing the right. A licence agreement is simply a contract that permits someone else (the licensee) to do ‘something’.

In the case of a plant variety right, that ‘something’ is doing something that would otherwise only be permitted to be undertaken by the right holder.

The most common form of a license agreement is a written contract between two parties in which the right holder permits another party to use that right under a specific set of parameters.

A licence agreement does not necessarily relate to all the rights. The permission to use could be limited to only part of the right. So, only propagation/reproduction, not production. Or only growing on; no propagation. Or merely trialling; no commercialisation. In essence, a trial agreement is also a licence agreement.

CLARITY IS CRUCIAL

In the Dutch Plant Variety Law, there is a provision that stipulates, “In the absence of other provisions, a license will apply for the full duration of the PVR and applies to all acts which are subject to the consent of the holder of the PVR pursuant to this Law.”

In other jurisdictions, there are different laws with similar provisions.

A licence agreement can be concise and only set out the bare essentials:
 Which right is being licensed – is it the varieties or variety?
 What are the authorised acts/scope of license?
 Is the licence exclusive, or is it a so-called ‘sole license’?
 For which territory is the licence granted?
 What is the compensation/royalty?
 When and how should the royalty be paid?
 What are the reporting procedures, and what rights of auditing are given to the Licensor?
 What is the duration of the Licence, and how can it be terminated (if at all)?
 How would you like disputes to be resolved?

HELPFUL CLAUSES

If you stick to these essentials, the licence agreement can be short.
However, there is a large list of subjects that are often worthwhile to be addressed:
I usually refer to these subjects as the ‘helpful clauses’. Among these are the following:
 Definitions;
 Modification of licensed rights/varieties;
 Detailed description of non-authorised acts;
 Is the Licensee authorised to sublicense?
 Obligations regarding reporting on sales;
 Restrictions on sourcing starting material/young plants;
 Controlled circulation of material/‘closed’ licensing system (‘perpetual clauses’);
 Certification/quality control;
 Obligations on the use of a variety denominations/trade marks/labelling;
 Ownership of improvements / EDVs;
 Are there royalty obligations after the expiry of rights?
 Obligations/arrangements for events of late payment;
 Reporting assistance by third parties/certification bodies;
 Are there restrictions on assignment/subcontracting?
 Sell-off rights upon termination of the agreement;
 Limitation of liability of the Licensor or Licensee;
 Safeguarding obligations;
 Who may undertake enforcement actions/authorisations;
 Reporting on known infringements;
 Penalties for non-compliance?
 Reasons for termination of contract and consequences of termination;
 Consequences of cancellation of licensed rights;
The list above is long but not exhaustive.

A LICENSE IS NEVER AN OFF-THE-SHELF PIECE OF PAPER

All these subjects are usually relevant themes to think about when you wish to enter into a licence agreement.

It does not matter which side you are on, the right holder or the prospective licensee. What is practicable and reasonable depends on many factors, such as specific characteristics of the variety and the market, geographical considerations, the number of parties active or expected to become active in the market, and whether the parties are known to each other. The experience of the parties, to name a few – again, the list is not exhaustive.

Because there are so many options, variations and solutions, a licence agreement is hardly ever an off-the-shelf piece of paper. It needs time for reflection, discussion, and good drafting. So that both parties have good clarity of what they get and what they are giving away and are aware of what they prefer to leave open. Even a sample contract typically deserves careful review.

Good luck in giving more attention to your licence agreements!

This article was first published in the November 2023 issue of FloraCulture International. It is written by Tjeerd Overdijk, Attorney-at-Law at Vondst Advocaten in the Netherlands.