Tuesday, September 27, 2005

The value of a specific damages provision

There have been a number of recent CAFC decisions involving licenses:
U.S. Philips v. International Trade Commission, 2005 US App LEXIS 20202 (CAFC 2005), MedImmune v. Centocor, 409 F3d 1376, 74 USPQ2d 1942 (CAFC 2005), Aspex v. Elite Optik, 2005 US App LEXIS 4803. An article in ComputerWorld discusses issues of a recent pharm case relevant to software licensing.

The case also illustrates that a specific damages provision in a software licensing agreement is a tool in the licensor's arsenal and complements a software-code escrow agreement. Each is an important risk-management device. Of course, a licensee that plans to build an enterprise on licensed software may want some recourse if the licensor goes out of business or is otherwise unable or unwilling to maintain the software. A software-code escrow agreement permits the licensee to have access to the source code in order to obtain maintenance or other related services from third parties. But from the licensor's perspective, exposing source code to third parties runs the risk of revealing valuable trade secrets. In the same way, a specific damages provision in the event of a misappropriation of those trade secrets by the licensee allows the licensor to quantify the value of its intellectual property in advance. The licensee knows what is on the table if the intellectual property is misused.


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