Two decisions handed down by the German Federal Court (Bundesgerichtshof, BGH), the highest civil court of last resort in Germany and so with a similar status to the UK's Supreme Court, preserved the validity of a sub-licence upon termination of the main licence.
While having no direct impact on UK law, the decisions serve as a reminder that the terms of sub-licences should be clear. The UK position of sub-licences upon termination of the head licence is considered in our analysis.
If you are a licensor and wish all sub-licences to terminate on the termination of the head licence, then in light of the German decisions this should be made explicit in the head licence. In addition, the head licence should clearly state that there is an obligation on the head licensor to include such provisions in all sub-licences. You may also try to obtain the right to approve all sub-licences to make sure that such a provision is indeed included.
On the other hand, if you are a sub-licensee wishing to ensure the continuation of your licence, then as the issue has not been adjudicated recently in the UK and in light of the recent German court decisions, you may have some arguments that it should continue if the sub-licence is silent on the point. That said, it is far better to expressly address the issue. This can be achieved in the head licence where the licensor agrees to step into the head licensee's shoes in respect of any sub-licensees. The licensor will usually only agree to this if the sub-licensee is not in breach of its sub-licence and the licensor will only take over the sub-licence to the extent that it reflects the terms of the head licence. It will not want to take on onerous obligations that the head licensor was happy to agree vis a vis its sub-licensee - for example, the supply of materials or R&D collaboration.
If such step-in rights are not included in the head licence then the sub-licensee will need to make the licensor a party to its sub-licence in order to ensure that it obtains this protection.