Know-How License Agreement

Know-How License Agreement

Drafts a commercially balanced agreement licensing confidential technical knowledge, processes, and trade secrets — information deriving value from secrecy rather than patent disclosure.

Prerequisites

Collect before drafting:

1. Transaction documents — term sheets, LOIs, prior agreements with negotiated terms
2. Party information — legal names, entity types, jurisdictions, principal places of business
3. Technical description — functional description of know-how sufficient to define scope without disclosing secrets
4. Commercial terms — exclusivity, territory, field of use, financial structure, milestones
5. Regulatory context — export control applicability, industry-specific regulations

Quick Start

1. Extract deal terms from uploaded documents (see Document Review)
2. Draft agreement sections in order (see Agreement Sections)
3. Bracket undecided terms: [AMOUNT], [PERIOD], [JURISDICTION]
4. Validate against Drafting Checks

Document Review

Extract from uploaded documents before drafting:

Extract	Details
Party identities	Legal names, entity types, jurisdictions
Know-how description	Technical scope, functional categories — preserve negotiated language
Financial terms	Upfront fees, milestones, royalty rates, minimums
Exclusivity & territory	Exclusive/sole/non-exclusive, geographic scope, field of use
Special provisions	Regulatory requirements, cross-border issues, university-to-industry terms
Existing relationships	Prior agreements to reference or supersede

Adjust approach for context: university-to-industry, cross-border, regulated technology, startup vs. established entity.

Agreement Sections

Draft these sections in order.

1. Preamble & Recitals

• Full party identification with entity type, jurisdiction, principal place of business
• Recitals: licensor ownership, trade secret status, licensee's desire for rights, mutual intent — no promotional language
• Reference background context (prior collaborations, strategic objectives)

2. Definitions

Precision is critical — ambiguity destroys enforceability and trade secret protection.

Key terms: Know-How/Licensed Technology (specific enough to enforce, flexible for updates; use confidential technical schedule if needed) · Licensed Territory (geographic precision; subcategories if rights vary) · Field of Use (applications, industries, product categories with clear boundaries) · Confidential Information (broad capture + standard exclusions: public domain, independent development, prior knowledge, third-party receipt) · Improvements/Derivative Know-How (modifications only vs. related developments) · Net Sales (inclusions/exclusions, bundled product valuation, affiliate transfer pricing) · Affiliate · Milestone Events (objective triggering criteria)

3. Grant of License

• Specify exclusive / sole / non-exclusive — define each in context
• Enumerate rights: use, manufacture, have-made, sell, distribute, create derivatives, sublicense
• Field-of-use restrictions with clear boundaries
• Territorial scope: manufacturing, use, sale, import; cross-border treatment
• Improvements: ownership, grant-back (exclusive/non-exclusive, royalty-bearing/free), joint improvements
• Licensor reservations: research rights, existing obligations, competing technology development
• Sublicensing: scope, approval rights, required terms, termination treatment

4. Financial Terms

Component	Key provisions
Upfront fees	Amount, timing, conditions precedent, creditability against royalties
Milestones	Defined events, objective criteria, amounts, payment timing
Running royalties	% of Net Sales or per-unit; bundled product allocation; stacking discounts
Minimum annual royalties	Amount per year; shortfall consequence (conversion, termination, or pay-up)
Payment mechanics	Currency, FX rates, frequency, method, late interest
Records & audit	3–5 year retention; annual audit by independent CPA; cost-shifting if underpayment exceeds threshold

5. Confidentiality & Trade Secret Protection

Failure here destroys trade secret status — this section is outcome-determinative.

• Standard of care: at least same as own most sensitive information, no less than reasonable care
• Physical, technical, and administrative safeguards required
• Permitted disclosures: need-to-know only, written confidentiality agreements from recipients
• Written disclosure log maintained; available to licensor on request
• Compelled disclosure: prompt notice, cooperate on protective orders, minimum disclosure
• Survival: indefinite (until public domain through no breach)
• Return/destruction on termination with officer certification
• Residual knowledge: address explicitly — cessation + destruction, or continued use subject to ongoing confidentiality and royalties (most litigated post-termination issue)

6. Technology Transfer & Support

• Documentation deliverables: format, scope, timeline
• Training: sessions, duration, location, cost allocation
• Ongoing technical support: scope, response times, limitations
• Manufacturing transfer, process validation, regulatory support
• Quality control: standards, sampling, reporting, facility inspections
• Updates/improvements: obligation to provide, included vs. additional fee

7. Diligence & Performance

Required for exclusive licenses — include objective milestones.

• Commercially reasonable efforts obligation
• Specific milestones with deadlines (development, regulatory, first commercial sale, sales targets)
• Consequences for failure: conversion to non-exclusive, termination, compulsory sublicensing
• Periodic progress reports: frequency, content, timing

8. Representations & Warranties

Licensor: authority to grant license, ownership/control of know-how, trade secret status maintained, no known third-party infringement (knowledge qualifier), disclosure of known limitations.

Licensee: authority to enter agreement, lawful use and regulatory compliance, technical and financial capability, export control and anti-corruption compliance.

Disclaimers (conspicuous text — bold or caps): AS-IS for functionality/accuracy/completeness/fitness, no non-infringement warranty (licensee responsible for FTO), disclaim implied warranties of merchantability and fitness for particular purpose.

9. Indemnification

• Licensee indemnifies: use, modification, manufacture, sale; product liability; combination with other tech; failure to follow instructions
• Licensor indemnifies: third-party IP claims re know-how as provided (often limited to rep/warranty breach)
• Procedures: prompt notice, indemnifier controls defense, no settlement admitting liability without consent, late notice relieves only to extent of material prejudice

10. Limitation of Liability

• Mutual consequential damages waiver (conspicuous text)
• Aggregate cap (e.g., multiple of fees paid in preceding 12 months)
• Carve-outs: confidentiality breach, unauthorized use beyond scope, indemnification, willful misconduct, gross negligence, fraud

11. IP Ownership

• Licensor retains all rights in licensed know-how; licensee acquires only expressly granted rights
• Improvements: licensor-developed → licensor; licensee-developed → licensee (subject to grant-back); joint → per agreement
• Enforcement: primary enforcer, notice obligations, cost/recovery allocation, step-in rights

12. Term & Termination

Trigger	Provisions
Term	Perpetual, fixed, or until terminated; renewal mechanics
Convenience	30–180 days notice; consider restricting for exclusive licenses
Material breach	Written notice + 30–60 day cure period
Incurable breach	Immediate: confidentiality breach, unauthorized use, non-payment
Insolvency	Automatic on bankruptcy, receivership, assignment for creditors
Diligence failure	Conversion to non-exclusive or termination
Change of control	Termination right, especially if acquirer is competitor

13. Post-Termination

• Cessation of use (immediate or wind-down with continued royalties)
• Sublicense treatment: automatic termination, survival if compliant, or conversion to direct license
• Return/destruction of all materials with written certification
• Accrued payments immediately due; audit rights survive
• Survival: confidentiality, payment, indemnification, liability limits, dispute resolution, governing law

14. Regulatory & Export Control

• Compliance with EAR, ITAR, and equivalent foreign laws
• Licensee responsible for export licenses/approvals
• No transfer to prohibited destinations/entities/persons
• Industry-specific compliance (FDA, environmental, safety) — allocate regulatory approval responsibility

15. General Provisions

Entire agreement, amendment (written only), assignment restrictions (consent required; affiliate/successor exceptions), notices, severability, waiver (written, instance-specific), independent contractor, counterparts/e-signatures (E-SIGN Act), force majeure (excludes payment; termination if prolonged), further assurances.

16. Signature Blocks & Schedules

Signature blocks with name, title, date, authority representation. Exhibits: confidential technical description, documentation list, payment schedule, milestone chart, quality specs, form sublicense/NDA.

Drafting Checks

• Calibrate to deal size: complex/high-value → exhaustive schedules; simple methodology transfer → streamlined
• Protect trade secret status: every confidentiality provision must satisfy DTSA/UTSA requirements
• No implied licenses: expressly reserve all rights not granted
• Conspicuous disclaimers: bold or caps for warranty disclaimers and liability limitations
• Export control: mandatory for any dual-use technology
• Royalty stacking: include anti-stacking or reduction provisions if applicable
• Exclusive licenses: always require diligence with objective milestones
• Jurisdictional flags: note where provisions need non-US adjustment