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License Agreements: The Scope of Application (Part 2)

In part 2 of this blog series, we delve into the scope of license agreements. In particular: Are there geographical boundaries to licenses and can licenses be limited to specific acts of use, sectors, and applications?
 
Christel Jeunink
23 June 2023
23 June 2023

Scope of Licenses

While the law doesn't exactly describe what a license is, it does provide indications about the scope of licenses. The Copyright Act, the Benelux Convention on Intellectual Property (BCIP), and the Dutch Patent Act contain specific provisions about the scope of licenses. Both licensees and licensors must take these into account when drafting a license agreement and determining the scope of the license.

 

Geographical Restrictions of Licenses

A license is naturally limited to the geographical boundaries of the intellectual property rights being licensed. Nearly all intellectual property rights are restricted to a specific geographical area. For instance, a Benelux trademark can only be invoked in the Benelux region, a Dutch patent only applies in the Netherlands, and a European design applies throughout the EU. Copyrights can be invoked worldwide (with exceptions for a few countries). If such rights are licensed, the license can only be granted for the territory where the respective intellectual property right can be invoked. The rights holder has no rights outside this territory.

Moreover, the license can be granted for a portion of the territory where the intellectual property right can be invoked. For example, a third party may be granted a license for the Dutch territory in the case of a Benelux trademark. Although the territorial demarcation of licenses does not always result in absolute market division or delineation (for instance, due to 'exhaustion' of the respective intellectual property right), contractual agreements in a license agreement can ensure that this goal is achieved as much as possible. In this context, parties can agree on what they wish, unless the intended agreement is prohibited by competition law. This can be the case, for example, if the territorial restriction is in conflict with the prohibition of cartels under Article 101(1) of the Treaty on the Functioning of the European Union (TFEU).

 

Scope of Application or 'Field of Use'

Not only can a license be limited to a specific area, but also restrictions can be imposed on the field of use of the licensed rights. It can be agreed, for instance, that a patent license only applies to a specific product, a specific sector (such as the 'healthcare sector', the 'gaming industry' or the 'automotive sector'), a specific field of application (like 'life sciences' or 'food'). In all cases, it is crucial that the field of use is well defined, so no disputes can arise about it at a later stage.

 

Broad or Limited Interpretation of License Agreements

However, depending on the intellectual property right, a license may require a broad or limited interpretation. For Dutch patents, Article 56(1) of the Patents Act stipulates that a patent license extends to all acts reserved for the patent holder unless a less extensive right has been granted at the time of license grant. In the case of a patent license, it is therefore important to clearly state the limitations applicable to the license.

In the case of an exclusive copyright license, which must be granted in writing according to the Copyright Act, the license only includes those rights specified in the act or those necessarily resulting from the nature and scope of the license. This suggests that an exclusive license should be interpreted restrictively, in favor of the licensor. Furthermore, the 'general rules' for interpreting agreements apply. In practice, the Haviltex norm is used. The Haviltex norm implies that the interpretation of an agreement depends on the meaning that the parties reasonably attributed to the provisions of the contract given the circumstances and what they could reasonably expect from each other.

It is important to consider separately for each intellectual property right, which acts can be permitted under a license and what restrictions can be imposed on the usage rights. This can vary depending on the intellectual property right. For instance, a trademark can only be licensed for the goods and services for which it is registered, but a trademark license can be restricted for part of the goods and services for which the trademark is registered. In the case of a patent license, only those acts reserved to the patent holder that are listed in Article 53(1) can be licensed. According to Article 53(3), these rights do not extend to acts solely intended for research on the patented object. Therefore, each license agreement should consider the rights and restrictions based on the various intellectual property rights.

 

Conclusion

From the above, it is clear that license agreements and the scope of application of the license need to be drafted very carefully. A licensor needs to thoroughly consider the restrictions they wish to impose on the license and it is wise to agree on these restrictions in writing with the licensee. It's also important for a licensee to clearly understand the parameters of the licensed rights.