Technology licenses are generally transferred through private law contracts under Turkish Law. They are commonly used in business transactions such as mergers and acquisitions, joint venture agreements and research collaboration agreements. Licensing agreements in Turkish Law are regulated under Industrial Property Law numbered 6769 and dated 22.12.2016 (“Law”). However, provisions under the Law regarding such agreements are not extensive compared to other contract types such as sale and purchase, services and financial leasing. As a result, licensing agreements are considered sui generis contracts. Correspondingly, parties to a licensing agreement must designate the provisions thereof in a diligent manner and such provisions should cover broad range of topics such as deficiency, warranty and confidentiality as the Law does not offer any gap filling terms to the parties regarding such matters. Under Turkish law, license agreement can be used to license tangible assets such as software, trademarks and patents and intangible assets such as know-how and trade secrets.
As per the Law, in license agreements the owner of intellectual property (“IP”) rights gives third parties permission to use or exploit IP rights for a limited time or in a limited way. Basically, licensor grants the licensee the rights to use the idea, innovation and such. Notable here is that; the licensor retains all IP rights on the technology by only granting the usage of such right. The terms and scope of the usage of the IP rights shall be determined in detail within the contract.
A license may be exclusive or non-exclusive and may be restricted by territory, time, purpose, or any other restriction desired by the parties. Unless otherwise agreed in the contract, the license shall be deemed as non- exclusive. In non-exclusive license contracts, licensor may use the IP right itself or may grant licenses to third parties. In the exclusive license contracts, licensor most often may not use the IP rights for its own purposes or grant sub-licenses to third parties unless otherwise explicitly agreed by the parties.
Further, exclusive licensee, unless otherwise agreed in the contract, may pursue legal proceedings that may be filed by the licensor and use any legal remedy offered by the relevant legislation in case of an infringement of any licensed IP right by a third party. If the non- exclusive licensee’s right to pursue legal remedies regarding licensed IP rights is restricted by the license contract, non-exclusive licensee may notify in writing, the licensor to request an institution of the required legal proceeding. In case the licensor does not accept this request or does not file the requested legal proceeding within three months, licensee may institute the legal proceedings.
License Agreements and Pricing
Another matter to be addressed in licensing is that the structure of payment. The payment in technology agreements usually take the form of a lump sum fee, a royalty fee or a combination of both. Royalties are the most commonly used payment method in license agreements. Royalty obligations should provide a clear description of the licensee’s services for which royalties are to be paid. The royalty obligations may take different forms depending on the nature of the technology, such as whether it is a machine, a process, or a composition of matter. The royalty obligations also depend on the licensee’s intended use; for instance, use for manufacturing purposes or for sales of patented products.
Royalty fees can also include up-front payments, milestone payments, or running royalties. They are calculated based on a percentage of sales revenue, a percentage of net profits or a fixed fee amount per unit. Royalties can be paid in several ways, but generally consist of an initial payment and subsequent payments over the duration of the agreement. The initial payment is frequently paid when the agreement is signed. Subsequent payment is most preferred in long-term agreements and is paid over the course of the license agreement.
Lump sum fees, on the other hand, are called as a fixed fee which indicates that the parties to the license agreement have agreed upon a fixed amount. Such amount may also be paid as a whole or in scheduled installments pursuant to the agreement.
Unless otherwise prohibited in the license agreement, licensee may grant a third party the license to use the IP rights within the scope of the license agreement. Pursuant to the Law; exclusive licensee shall not grant sub-licenses to third parties. Besides it should be noted that the scope of the rights of the sub-licensee are only limited with the rights of the licensee in accordance with the main licensing agreement. Sub- license agreement is also affected from the main agreement in terms of expiration, termination or invalidity.
Licensing offers an opportunity for exploiting and commercializing intellectual property. The level of technology transfer involves a legal process which actually facilitates the transferor and transferee to adopt legal channel for successful transactions, at that point licensing agreements play a fundamental role in bringing the technology advancement.
Malven, M. (2015) Technology Transactions: A Practical Guide to Drafting and Negotiating Commercial Agreements.
Megantz, R. (1996) How to License Technology.
Quayyum, M. (2015) Technology Transfer Agreements: Are these Agreements Most Effective Method of Transfer of Technology.