United States: International Licensing: A Guide to Entering the Foreign Marketplace

Globalization was a big buzzword during the dot-com boom. Back then many companies had the resources to enter into foreign markets. And they did so--at a frenetic pace, often with mixed results. These days, resources are dwindling, and companies have a different incentive to go global. The slowdown in United States consumer spending has sent licensors searching for foreign partners.

How does a company evaluate whether it should license its products outside the U.S.? It can start by examining certain threshold considerations.

Let's take Starving Software, Inc., a hypothetical company for example. Starving is looking for additional revenue sources, and has identified several foreign partners who are interested in licensing its products. Starving needs to understand the legal ramifications involved in licensing overseas.

Counsel should start by evaluating Starving's business reasons for entering the market in question. There are many reasons for taking a product to a foreign market. Simply doing it "because it's there" is not one of them. It could be that by aligning with a foreign business partner Starving will gain access to a new market and the resources necessary to sell its products on a broader scale. Alternatively, Starving's foreign partner may be able to exploit its intellectual property in a way that Starving couldn't manage on its own.

After analyzing its reasons and goals for licensing abroad, Starving should identify compatible partners and get to know them. Starving should consider its potential partner's level of technical expertise and whether it will be expected to provide technical assistance to its foreign partner.

Suppose that Starving's product is software that is used for data organization as data will be transmitted through networks and stored on computers, Starving will need to evaluate its partner's systems security methods.

Early on, Starving will need to ensure that applicable U.S, laws, as well as laws of the foreign market, will not adversely affect the transaction Starving's counsel will need to analyze the laws of the relevant jurisdictions and involve local counsel as necessary. Some foreign countries require that technology licenses be approved by a government authority, and may put conditions on this approval. In member countries of the European Union and in Canada, the use, collection, storage and/or transmission of information about private individuals is restricted. In other countries exclusion or limitation of certain warranties or liability may he prohibited. In some foreign jurisdictions intellectual property law allows the reverse engineering of software for limited reasons- Other countries restrict the ability of companies to place export controls on software.

Starving will want to understand how-or whether the rights it is licensing are recognized in the target market. For example, U.S. membership in the Berne Convention and the Universal Copyright Convention extends copyright protection to copyrighted material in any member country. Although most foreign countries provide some copyright protection for software, the level of protection can vary. For example, although software is protected in Japan, no protection exists for programming languages, syntax, or algorithms. Plus, some countries like Kuwait may offer copyright protection for software, but not belong to the Convention. In any case, protection for foreign works is unlikely to be identical to U.S. safeguards.

As for other intellectual property rights, such as patent and trademark rights, most countries will require some type of filing-even if through an international application-and periodic renewal or maintenance fees for the filing to remain in force. The Agreement on 'Fade-Related Aspects of Intellectual Property Rights requires world Trade Organization members to adopt laws that establish minimum protections for certain intellectual property rights, including patents, copyrights, and trade secrets. Since TRIPs was signed in 1994, an increasing number of countries have adopted trade secrets laws. However, in some countries, the enforcement of such laws remains a problem (such as in Japan, where there exists a constitutional requirement that all court proceedings ultimately be publicly disclosed).

Counsel should explain to Starving's management that some foreign jurisdictions may apply its laws to Starving's license agreement in an inconsistent or unpredictable way. The existence of seemingly favorable law in a foreign jurisdiction does not necessarily mean that an agreement will be enforceable, or treated favorably under applicable law. Also, local law in certain jurisdictions may render meaningless the choice of law and forum clauses in Starving's contract. In that case, it may be impractical to litigate the agreement depending upon the jurisdiction in question. An alternative to litigation would be a clause requiring dispute resolution.

It is often appropriate in the context of an international agreement to specify that the parties will use arbitration-rather than a court system-to resolve their disputes. Starving will want to specify what rules will govern and where arbitration will take place. If the patties forgo arbitration, Starving should specify the applicable forum and choice of law (for use in the event such provisions are upheld) and that the parties agree to submit to the jurisdiction of the court in question.

A company's standard terms and conditions may serve as a starting point, but will have to be tailored for each unique international deal.