CLP Ethical Practices in Licensing 2 — Questions and Answers
Question 1: A licensing professional learns that a licensee is sublicensing the technology to a third party without authorization. What is the FIRST ethical obligation?
- Immediately terminate the license agreement
- Notify the licensor and document the violation (Correct answer)
- Ignore it if royalties are being paid on time
- Report the sublicensee to regulatory authorities
Correct answer: Notify the licensor and document the violation
The ethical duty is to notify the licensor and document the unauthorized sublicense, allowing proper remediation before escalating to termination.
Question 2: Under the LES (Licensing Executives Society) Code of Ethics, a member must avoid situations where personal interests conflict with those of their client. This principle is best described as:
- Confidentiality
- Competence
- Avoiding conflicts of interest (Correct answer)
- Fair dealing
Correct answer: Avoiding conflicts of interest
Avoiding conflicts of interest is the core LES ethical principle that requires members to separate personal gain from client obligations.
Question 3: A CLP professional is asked to value a patent portfolio for both the buyer and seller in the same transaction. The most ethical course of action is to:
- Accept the dual engagement with full disclosure to both parties
- Accept without disclosure since both parties benefit
- Decline the dual engagement to avoid a conflict of interest (Correct answer)
- Accept only if both parties are competitors
Correct answer: Decline the dual engagement to avoid a conflict of interest
Serving both sides of a transaction creates an inherent conflict of interest, and declining the dual engagement is the ethically sound decision.
Question 4: Which practice BEST demonstrates ethical conduct when a licensee reports a potential invalidating prior art for a licensed patent?
- Instruct the licensee to keep it confidential
- Disclose the prior art to the patent office if material (Correct answer)
- Negotiate a lower royalty rate and continue
- File a continuation application to extend patent life
Correct answer: Disclose the prior art to the patent office if material
Candor to the patent office is a legal and ethical duty; material prior art must be disclosed regardless of its commercial impact on the licensor.
Question 5: A licensing executive receives a gift valued at $500 from a prospective licensee during negotiations. Ethical standards suggest the executive should:
- Accept the gift as a normal business courtesy
- Accept and disclose it to management or legal counsel
- Return or decline the gift to avoid undue influence (Correct answer)
- Accept only if the gift is under the company policy threshold
Correct answer: Return or decline the gift to avoid undue influence
Declining or returning gifts during active negotiations avoids even the appearance of impropriety or undue influence on the outcome.
Question 6: In ethical licensing practice, royalty stacking occurs when multiple licensors each demand royalties for overlapping technology. The ethical concern for a licensee is primarily:
- Violating antitrust laws by paying multiple licensors
- Bearing an unfair cumulative financial burden that impedes commercialization (Correct answer)
- Breaching confidentiality by disclosing the stack to each licensor
- Misrepresenting royalty obligations in financial statements
Correct answer: Bearing an unfair cumulative financial burden that impedes commercialization
Royalty stacking can impose unsustainable cumulative costs on licensees, which raises fairness concerns and may hinder product development and access.
Question 7: When a CLP professional discovers that their employer has been underreporting royalties to a licensor, the most ethical action is to:
- Correct the records internally and say nothing externally
- Resign immediately to avoid any association with the conduct
- Report the discrepancy internally and escalate if not remedied (Correct answer)
- Wait until the next audit cycle to address it
Correct answer: Report the discrepancy internally and escalate if not remedied
Ethical obligations require raising compliance issues internally first; if unresolved, escalating through proper channels or external reporting may be warranted.
CLP Ethical Practices in Licensing 2
A licensing professional learns that a licensee is sublicensing the technology to a third party without authorization.
What is the FIRST ethical obligation?