Compliance & Risk Management Flashcards

What is the primary compliance concern with 'grant-back' provisions that require licensees to assign (not license) improvements back to the licensor?

Answer: They may be deemed anticompetitive and constitute patent misuse

Mandatory assignment grant-backs may be anticompetitive and constitute patent misuse because they discourage innovation and concentrate IP ownership, while exclusive license grant-backs receive closer antitrust scrutiny.

Under the Foreign Corrupt Practices Act (FCPA), which scenario most likely creates compliance exposure in a licensing arrangement?

Answer: A licensee's local agent paying government officials to expedite regulatory approvals for licensed products

The FCPA prohibits bribing foreign government officials to obtain or retain business; a licensee's agent paying officials for regulatory approvals creates FCPA exposure, and licensors can be liable for agent conduct.

Which due diligence step is most critical when acquiring a license portfolio in an M&A transaction?

Answer: Verifying chain of title and identifying any encumbrances or unreleased liens on licensed IP

Verifying chain of title ensures the target actually owns or has authority to license the IP, while identifying encumbrances (such as security interests or prior exclusive licenses) reveals restrictions on transferability or use.

A compliance audit reveals that a licensee is selling licensed products outside the licensed territory. What is this called and what is the typical licensor remedy?

Answer: Gray market diversion; the licensor may terminate the agreement and seek damages for unauthorized sales

Selling outside the licensed territory is territorial diversion (gray market sales), which breaches the license agreement, entitling the licensor to terminate and seek damages for revenues earned from unauthorized sales.

In risk-based compliance program design, what does 'tiered monitoring' mean in a licensing context?

Answer: Applying more intensive oversight to higher-risk licensees and lighter oversight to low-risk ones

Tiered monitoring allocates compliance resources proportionally, subjecting higher-risk licensees (e.g., those in high-corruption jurisdictions or with audit discrepancy history) to more frequent and intensive review.

Which provision in a license agreement best protects against the risk that licensed IP is later found to be invalid or unenforceable?

Answer: A royalty abatement or suspension clause tied to IP validity challenges

A royalty abatement or suspension clause allows the licensee to reduce or suspend royalties if the licensed IP is challenged or invalidated, protecting the licensee from paying for IP that provides no exclusive benefit.

What is the significance of a 'material breach' threshold in a licensing compliance context?

Answer: It establishes which violations trigger the right to terminate the agreement versus requiring a cure period

Material breach thresholds define which contractual violations are serious enough to give the non-breaching party the right to terminate the agreement, often after a cure period, versus minor breaches requiring only remediation.