License agreement checklist: the 10 sections you need to review on every deal

Life sciences thrive on innovation, and licensing is the backbone of bringing that innovation to market. But here’s the thing: license agreements are often seen as dense legal documents, full of jargon and clauses that seem unnecessary. Yet, these agreements are critical for defining how intellectual property (IP) is shared, protected, and commercialized. Get them wrong, and you’re looking at disputes, lost revenue, or even legal battles. So, what makes these agreements so tricky? It’s the sheer complexity of aligning the goals of both parties while addressing all the “what-ifs” of innovation.

Let’s break it down and explore the key terms that make up a successful license agreement.

Breaking down the key terms

1. Definitions

Every solid agreement starts with a clear definitions section. It sets the stage by explaining exactly what’s covered. What IP is being licensed? Is it patents, know-how, or proprietary data? Where can it be used? What specific applications does it cover? For example, if a biotech company licenses a drug delivery technology, the “Field of Use” might limit it to oncology treatments. These details are critical for avoiding confusion and disputes.

2. Grant of license

The grant clause outlines what rights the licensee gets. Is it exclusive, meaning only one company can use the IP in a particular field? Or non-exclusive, allowing the licensor to grant similar rights to others?

Sublicensing is another critical consideration in this context. It can significantly expand the reach of licensed IP but requires careful planning to avoid conflicts and financial ambiguity. The license agreement should explicitly address whether sublicensing is permitted, the approval process for sublicensees, and the financial implications. For instance, licensors often require that a percentage of sublicensee revenues flow back to them as royalties. Without clear provisions, sublicensing can lead to disputes over revenue sharing or territory use. 

3. Technology transfer

In many agreements, the licensor’s role doesn’t stop at granting rights. They may need to help the licensee use the IP effectively. This could involve sharing technical know-how, providing training, or even transferring physical materials like cell lines or manufacturing protocols. For example, in a vaccine licensing deal, the licensor might supply proprietary processes for scaling up production. These obligations should be clearly defined to prevent misunderstandings about the level of support required.

4. Financial terms

Money matters, and licensing deals are no exception. Agreements often include upfront payments, milestone payments tied to achievements like regulatory approvals, and royalties based on sales. But how are royalties calculated? What deductions are allowed? For example, a licensee might want to deduct third-party royalty payments to avoid double-dipping costs. We’ll cover these financial structures in detail in a separate blog post.

5. Performance obligations

To ensure the licensee doesn’t just sit on the IP, agreements often include performance obligations. These might require the licensee to achieve specific milestones, such as starting clinical trials within two years, or to use “commercially reasonable efforts” to commercialize the product. Licensors might also want the right to terminate the agreement if these obligations aren’t met.

6. Warranties, liability, and indemnities

This section is where the deal’s risk allocation becomes real. In life sciences, they often cover chain of title (including employee inventor assignments), absence of conflicting grants (for example prior exclusivities, options or liens), the status of prosecution and maintenance, and whether there are known disputes or challenges (oppositions, nullity actions, inventorship claims). Parties also negotiate what is not promised. Many licensors resist broad statements like “valid and enforceable” and instead offer knowledge-qualified assurances plus disclosure obligations.

Liability clauses and indemnities are related, but they solve different problems. Liability provisions typically cap exposure and exclude certain heads of damages for contract breaches. Indemnities usually address third-party claims and set a procedure: who controls the defence, who approves a settlement, who pays. A common flashpoint is whether the liability cap applies to indemnities, and if not, which carve-outs make commercial sense (for example third-party IP infringement claims, product liability claims, fraud, wilful misconduct, breaches of confidentiality).

7. IP protection responsibilities

Who’s responsible for maintaining and defending the IP? The agreement should clarify whether the licensor will handle patent renewals and enforcement - and who will bear the associated costs. For example, in global licensing deals, the licensor might retain control over patents in key jurisdictions, while allowing the licensee to handle enforcement in its local markets.

8. Confidentiality

When know-how or trade secrets are part of the deal, confidentiality clauses ensure they’re protected. The agreement might also restrict publications, especially in research collaborations, to prevent sensitive data from being disclosed prematurely.

9. Improvements

This section determines ownership of enhancements to the licensed IP. If a licensee develops a new use for a licensed compound, does the licensor get rights to that improvement? Some agreements automatically include improvements, while others require additional negotiations. For instance, a licensee creating an upgraded version of a licensed diagnostic tool might need to negotiate new terms for sharing the improvement.

10. Term and Termination

Every agreement needs a clear endgame. How long will the license last? What happens if one party breaches the agreement? For example, if the licensee fails to meet milestones, the licensor might have the right to terminate the deal. The contract should also address what happens to sublicenses and improvements upon termination.

Conclusion

License agreements are the glue that holds life sciences collaborations together, but they’re far from simple. By addressing key issues like technology transfer, liability, financial terms, IP protection and termination scenarios, these agreements ensure that both parties can achieve their goals while minimizing risks. Whether you’re a licensor looking to monetize your innovation or a licensee aiming to bring a breakthrough to market, understanding these terms is critical to getting the most out of your deal.