know-how-license

# Know-How License Agreement

Drafts a commercially balanced agreement licensing confidential technical knowledge, processes, and trade secrets — information deriving value from secrecy rather than patent disclosure.

## Prerequisites

Collect before drafting:

1. **Transaction documents** — term sheets, LOIs, prior agreements with negotiated terms
2. **Party information** — legal names, entity types, jurisdictions, principal places of business
3. **Technical description** — functional description of know-how sufficient to define scope without disclosing secrets
4. **Commercial terms** — exclusivity, territory, field of use, financial structure, milestones
5. **Regulatory context** — export control applicability, industry-specific regulations

## Quick Start

1. Extract deal terms from uploaded documents (see Document Review)
2. Draft agreement sections in order (see Agreement Sections)
3. Bracket undecided terms: `[AMOUNT]`, `[PERIOD]`, `[JURISDICTION]`
4. Validate against Drafting Checks

## Document Review

Extract from uploaded documents before drafting:

| Extract | Details |
|---------|---------|
| Party identities | Legal names, entity types, jurisdictions |
| Know-how description | Technical scope, functional categories — preserve negotiated language |
| Financial terms | Upfront fees, milestones, royalty rates, minimums |
| Exclusivity & territory | Exclusive/sole/non-exclusive, geographic scope, field of use |
| Special provisions | Regulatory requirements, cross-border issues, university-to-industry terms |
| Existing relationships | Prior agreements to reference or supersede |

Adjust approach for context: university-to-industry, cross-border, regulated technology, startup vs. established entity.

## Agreement Sections

Draft these sections in order.

### 1. Preamble & Recitals

- Full party identification with entity type, jurisdiction, principal place of business
- Recitals: licensor ownership, trade secret status, licensee's desire for rights, mutual intent — no promotional language
- Reference background context (prior collaborations, strategic objectives)

### 2. Definitions

Precision is critical — ambiguity destroys enforceability and trade secret protection.

Key terms: **Know-How/Licensed Technology** (specific enough to enforce, flexible for updates; use confidential technical schedule if needed) · **Licensed Territory** (geographic precision; subcategories if rights vary) · **Field of Use** (applications, industries, product categories with clear boundaries) · **Confidential Information** (broad capture + standard exclusions: public domain, independent development, prior knowledge, third-party receipt) · **Improvements/Derivative Know-How** (modifications only vs. related developments) · **Net Sales** (inclusions/exclusions, bundled product valuation, affiliate transfer pricing) · **Affiliate** · **Milestone Events** (objective triggering criteria)

### 3. Grant of License

- Specify exclusive / sole / non-exclusive — define each in context
- Enumerate rights: use, manufacture, have-made, sell, distribute, create derivatives, sublicense
- Field-of-use restrictions with clear boundaries
- Territorial scope: manufacturing, use, sale, import; cross-border treatment
- Improvements: ownership, grant-back (exclusive/non-exclusive, royalty-bearing/free), joint improvements
- Licensor reservations: research rights, existing obligations, competing technology development
- Sublicensing: scope, approval rights, required terms, termination treatment

### 4. Financial Terms

| Component | Key provisions |
|-----------|---------------|
| Upfront fees | Amount, timing, conditions precedent, creditability against royalties |
| Milestones | Defined events, objective criteria, amounts, payment timing |
| Running royalties | % of Net Sales or per-unit; bundled product allocation; stacking discounts |
| Minimum annual royalties | Amount per year; shortfall consequence (conversion, termination, or pay-up) |
| Payment mechanics | Currency, FX rates, frequency, method, late interest |
| Records & audit | 3–5 year retention; annual audit by independent CPA; cost-shifting if underpayment exceeds threshold |

### 5. Confidentiality & Trade Secret Protection

Failure here destroys trade secret status — this section is outcome-determinative.

- Standard of care: at least same as own most sensitive information, no less than reasonable care
- Physical, technical, and administrative safeguards required
- Permitted disclosures: need-to-know only, written confidentiality agreements from recipients
- Written disclosure log maintained; available to licensor on request
- Compelled disclosure: prompt notice, cooperate on protective orders, minimum disclosure
- Survival: indefinite (until public domain through no breach)
- Return/destruction on termination with officer certification
- **Residual knowledge**: address explicitly — cessation + destruction, or continued use subject to ongoing confidentiality and royalties (most litigated post-termination issue)

### 6. Technology Transfer & Support

- Documentation deliverables: format, scope, timeline
- Training: sessions, duration, location, cost allocation
- Ongoing technical support: scope, response times, limitations
- Manufacturing transfer, process validation, regulatory support
- Quality control: standards, sampling, reporting, facility inspections
- Updates/improvements: obligation to provide, included vs. additional fee

### 7. Diligence & Performance

Required for exclusive licenses — include objective milestones.

- Commercially reasonable efforts obligation
- Specific milestones with deadlines (development, regulatory, first commercial sale, sales targets)
- Consequences for failure: conversion to non-exclusive, termination, compulsory sublicensing
- Periodic progress reports: frequency, content, timing

### 8. Representations & Warranties

**Licensor**: authority to grant license, ownership/control of know-how, trade secret status maintained, no known third-party infringement (knowledge qualifier), disclosure of known limitations.

**Licensee**: authority to enter agreement, lawful use and regulatory compliance, technical and financial capability, export control and anti-corruption compliance.

**Disclaimers (conspicuous text — bold or caps)**: AS-IS for functionality/accuracy/completeness/fitness, no non-infringement warranty (licensee responsible for FTO), disclaim implied warranties of merchantability and fitness for particular purpose.

### 9. Indemnification

- **Licensee indemnifies**: use, modification, manufacture, sale; product liability; combination with other tech; failure to follow instructions
- **Licensor indemnifies**: third-party IP claims re know-how as provided (often limited to rep/warranty breach)
- Procedures: prompt notice, indemnifier controls defense, no settlement admitting liability without consent, late notice relieves only to extent of material prejudice

### 10. Limitation of Liability

- Mutual consequential damages waiver (conspicuous text)
- Aggregate cap (e.g., multiple of fees paid in preceding 12 months)
- Carve-outs: confidentiality breach, unauthorized use beyond scope, indemnification, willful misconduct, gross negligence, fraud

### 11. IP Ownership

- Licensor retains all rights in licensed know-how; licensee acquires only expressly granted rights
- Improvements: licensor-developed → licensor; licensee-developed → licensee (subject to grant-back); joint → per agreement
- Enforcement: primary enforcer, notice obligations, cost/recovery allocation, step-in rights

### 12. Term & Termination

| Trigger | Provisions |
|---------|-----------|
| Term | Perpetual, fixed, or until terminated; renewal mechanics |
| Convenience | 30–180 days notice; consider restricting for exclusive licenses |
| Material breach | Written notice + 30–60 day cure period |
| Incurable breach | Immediate: confidentiality breach, unauthorized use, non-payment |
| Insolvency | Automatic on bankruptcy, receivership, assignment for creditors |
| Diligence failure | Conversion to non-exclusive or termination |
| Change of control | Termination right, especially if acquirer is competitor |

### 13. Post-Termination

- Cessation of use (immediate or wind-down with continued royalties)
- Sublicense treatment: automatic termination, survival if compliant, or conversion to direct license
- Return/destruction of all materials with written certification
- Accrued payments immediately due; audit rights survive
- Survival: confidentiality, payment, indemnification, liability limits, dispute resolution, governing law

### 14. Regulatory & Export Control

- Compliance with EAR, ITAR, and equivalent foreign laws
- Licensee responsible for export licenses/approvals
- No transfer to prohibited destinations/entities/persons
- Industry-specific compliance (FDA, environmental, safety) — allocate regulatory approval responsibility

### 15. General Provisions

Entire agreement, amendment (written only), assignment restrictions (consent required; affiliate/successor exceptions), notices, severability, waiver (written, instance-specific), independent contractor, counterparts/e-signatures (E-SIGN Act), force majeure (excludes payment; termination if prolonged), further assurances.

### 16. Signature Blocks & Schedules

Signature blocks with name, title, date, authority representation. Exhibits: confidential technical description, documentation list, payment schedule, milestone chart, quality specs, form sublicense/NDA.

## Drafting Checks

- **Calibrate to deal size**: complex/high-value → exhaustive schedules; simple methodology transfer → streamlined
- **Protect trade secret status**: every confidentiality provision must satisfy DTSA/UTSA requirements
- **No implied licenses**: expressly reserve all rights not granted
- **Conspicuous disclaimers**: bold or caps for warranty disclaimers and liability limitations
- **Export control**: mandatory for any dual-use technology
- **Royalty stacking**: include anti-stacking or reduction provisions if applicable
- **Exclusive licenses**: always require diligence with objective milestones
- **Jurisdictional flags**: note where provisions need non-US adjustment