Field of Use Restriction Clause

Field of Use Restriction Clause

Draft an enforceable field-of-use restriction clause that limits licensee exploitation to a defined scope while preserving licensor rights.

Prerequisites

Gather before drafting:

1. Licensed IP — patent numbers, technology descriptions, product specs, trade secret scope
2. Existing agreements — prior licenses, third-party rights, commitments affecting grantable scope
3. Business parameters — field boundaries (industry, geography, customer type, application method), exclusivity, sublicensing intent
4. Party information — licensor/licensee details, affiliates, related entities

Workflow

1. Define Key Terms

Cross-reference definitions with industry-standard terminology. Pull technical language from uploaded patent claims and specs.

2. Draft Grant of License

Grant clause must address:

• Exclusivity status within the permitted field
• Sublicensing rights and conditions
• Specific patent numbers; whether continuations/improvements included
• Know-how/trade secret scope and disclosure restrictions
• Term, renewal conditions, milestone-based field expansion
• Prior licenses or third-party rights carve-outs

Reserve all rights not expressly granted.

3. Specify Restrictions & Prohibited Activities

Affirmative obligations: flow-down to sublicenses, product marking with notices, internal compliance controls.

4. Include Monitoring & Audit Rights

• Audit right — licensor may audit books, records, operations for field compliance
• Notice period — typically 15–30 days
• Records retention — sales by application/market, customer lists, product descriptions
• Periodic reporting — tie compliance reporting to royalty calculations where applicable
• Cooperation — licensee must provide access and information

5. Define Breach Remedies

Monetary: liquidated damages (reasonable, not punitive), enhanced royalties on unauthorized uses, disgorgement of restricted-field profits.

Equitable: injunctive relief preserved; post-termination cease-use, return/destroy materials, assign IP from unauthorized use. Confidentiality and field restrictions survive termination.

6. Set Governing Law & Dispute Resolution

• Choice of law — jurisdiction with developed licensing case law (licensor HQ, technology origin, or primary licensee operations)
• Dispute mechanism — litigation, arbitration (technical panel for complex IP), or hybrid
• Expedited relief — preserve court access for TROs/preliminary injunctions even under arbitration
• Fees — each party bears own unless position substantially unjustified

Pitfalls & Checks

• Define field boundaries using multiple parameters (industry + application + geography) to reduce ambiguity
• Ensure liquidated damages are calibrated to anticipated harm, not punitive
• Verify all factual details (patent numbers, specs) match uploaded source documents exactly
• Flag jurisdiction-specific enforceability concerns — U.S. antitrust/competition law may limit overly broad restrictions (Princo Corp. v. ITC, 616 F.3d 1318 (Fed. Cir. 2010) [VERIFY])
• Adapt all language to specific deal terms; do not copy template language verbatim
• Mark clause for attorney review — field-of-use disputes are heavily fact-dependent