CLP Ethical Practices in Licensing 3 — Questions and Answers
Question 1: A licensing professional drafts a term sheet that includes a grant-back clause requiring the licensee to assign all improvements back to the licensor. Which ethical concern does this most directly raise?
- Breach of confidentiality
- Potential restraint on the licensee's innovation incentive (Correct answer)
- Violation of export control regulations
- Misrepresentation of the licensed technology's scope
Correct answer: Potential restraint on the licensee's innovation incentive
Mandatory assignment grant-backs can stifle licensee innovation and raise fairness concerns, as the licensee bears development risk without retaining the fruits of its effort.
Question 2: Ethical 'good faith' in licensing negotiations is BEST demonstrated by:
- Refusing to share any financial projections with the other party
- Disclosing known material defects in the licensed IP before signing (Correct answer)
- Strategically withholding prior art to strengthen the licensor's position
- Setting an artificially high initial royalty to create negotiation room
Correct answer: Disclosing known material defects in the licensed IP before signing
Good faith requires that material information affecting the value or validity of the licensed IP be disclosed before the parties commit to the deal.
Question 3: Under U.S. antitrust principles, which licensing practice is MOST likely to raise ethical and legal concerns regarding market competition?
- Charging different royalty rates to licensees in different countries
- Requiring licensees to purchase unpatented components exclusively from the licensor (Correct answer)
- Including a most-favored-licensee clause in the agreement
- Limiting the geographic scope of a license to a specific territory
Correct answer: Requiring licensees to purchase unpatented components exclusively from the licensor
Tying arrangements that require licensees to buy unpatented goods exclusively from the licensor can restrain competition and may violate Section 1 of the Sherman Act.
Question 4: A CLP professional is engaged as a neutral mediator in a licensing dispute. One party offers the mediator a success fee contingent on a specific outcome. The ethical response is to:
- Accept if it is a small percentage of the deal value
- Decline and inform both parties of the offer (Correct answer)
- Accept only with disclosure to one party
- Recuse from the mediation without explanation
Correct answer: Decline and inform both parties of the offer
A contingent fee destroys mediator neutrality; declining and disclosing the offer to both parties protects the integrity of the mediation process.
Question 5: Which scenario BEST illustrates a breach of confidentiality by a licensing professional?
- Sharing publicly filed patent information with a prospective licensee
- Disclosing a licensee's proprietary sales data to a competitor during due diligence (Correct answer)
- Referencing industry-standard royalty benchmarks in negotiation
- Publishing a case study of a completed deal with both parties' consent
Correct answer: Disclosing a licensee's proprietary sales data to a competitor during due diligence
Sharing a licensee's proprietary sales data with a competitor violates the duty of confidentiality and could constitute trade secret misappropriation.
Question 6: A licensor knowingly licenses patents that are unenforceable due to inequitable conduct during prosecution. This behavior is ethically problematic primarily because:
- It overstates the royalty base calculation
- It constitutes misrepresentation of the IP's legal validity (Correct answer)
- It violates most-favored-licensee provisions
- It conflicts with field-of-use restriction requirements
Correct answer: It constitutes misrepresentation of the IP's legal validity
Licensing unenforceable patents as if they were valid constitutes material misrepresentation, which is a fundamental breach of honest dealing.
Question 7: The principle of 'informed consent' in licensing ethics most directly requires that:
- Both parties use legal counsel before signing any license
- A licensee understand the scope, limitations, and risks of the rights being granted (Correct answer)
- The licensor disclose all pending litigation involving the IP
- Royalties be set at a rate independently verified by a third party
Correct answer: A licensee understand the scope, limitations, and risks of the rights being granted
Informed consent means the licensee has enough information about scope, limitations, and risks to make a truly voluntary and knowledgeable agreement.
CLP Ethical Practices in Licensing 3
A licensing professional drafts a term sheet that includes a grant-back clause requiring the licensee to assign all improvements back to the licensor.
Which ethical concern does this most directly raise?