A license grants someone (licensee) permission via contract to engage in an activity or to use property owned by the person granting the license (licensor). These prolific interactions are part of daily transactions. Obtaining a hotel room for a night is a license. Franchise agreements involve a license. The computer on which I am typing this has software licenses from Microsoft, Apple, Intel, and HP.

My iTunes license agreement is 4,289 words long.

For personal use, license agreements are often reasonable. What about when you click through for business? Sometimes not. There may be specific provisions stating you cannot use certain programs, images or words for business. The license agreements may reserve a fair amount of control for the licensor. Additionally, various other terms are working their way into license agreements. (See my prior two posts: nondisclosure agreements and indemnity agreements).

The licensor will request the licensee not share business secrets obtained through the license agreement and will also ask the licensee to indemnify, or hold harmless, the licensor in the event of injury or damage from the licensed item.

What does this mean? If you post a Microsoft Word document on your website, are you violating your Microsoft License Agreement? What if your link allows the user to access Word through your server?

Step 1: Read that long long long boring license agreement.

Step 2: Decide if you are engaging in any activities that may extend beyond the term of the license (e.g. making copies of a program for other business computers or using the source code for your own custom program or simply using images for which you have no license. Yes, they will sue you even if you are a “little” business.

Step 3: Ask yourself whether your business property, such as your website, would benefit from a license agreement, which should not be 7,000 words long.

Is the license for exclusive use of the licensee or is it non-exclusive – can it be used by multiple people at once? What is the term of the license? Can you charging a fee or a royalty for use?

If your business owns a patent, trademark or has a business model that works, a license is one way that you may be able to protect your asset. Or perhaps earn money from that asset. It is a wise, and sometimes mandated, decision to work closely with a licensee to be sure that your business property is not used in a manner that is inconsistent with your business.

Getting sued for violating an agreement is not fun. The best way to avoid that lawsuit is to read the agreement before clicking “I agree”. Reading the agreement may give you ideas about which of your products you wish to protect and how you will create that protection.

- Christine Branstad

Image via Wikipedia

Non-Disclosure Agreements (also called NDAs, Confidentiality Agreements or Secrecy Agreements) have broad use in business.

The “form” NDA is a business myth. Each is designed for a purpose; the provision to protect a trade secret in a severance agreement bears little resemblance to one used when exploring a joint venture. An intellectual property attorney protecting your patent-pending machine in “pitches” to manufacturers uses a significantly different NDA than an employment law attorney protecting your client list from “walking away” with current employees.

All non-disclosure agreements should be:

-   Realistic: Protecting information should not involve parties agreeing to lock themselves in windowless rooms while dealing with each other. If you are dealing with an unscrupulous person with no assets, an NDA may not protect you.

-   Tailored enough. If collaborating, do you expect the other party to disclose information to contractors or employees?

-   Broad enough. If you provide a plant tour, is information discovered in the plant tour protected?

-   Specific enough. If one party drops out, may the other use information obtained? Is there a specific penalty for disclosure? Is there a penalty for accidental disclosure (e-mail intercepted by hacker, cleaning service theft, et cetera)? Does the NDA adhere to the laws of the state where it is written and to the laws of states where each party does business?

The Iowa Supreme Court sets out a test to determine whether a “nondisclosure-confidential agreement” is enforceable. The courts look at whether the restriction is: “(1) reasonably necessary for the protection of the employer’s business; (2) unreasonably restrictive of the employee’s rights; and (3) prejudicial to the public interest.”

Among ethical business partners, an NDA will set boundaries of conduct and mutual expectations. A well-worded agreement may save future headaches.

But even the best NDA will not make an unethical employee act ethically. In the event of unethical behavior, a properly drafted NDA may be a corporate lifesaver.

- Christine Branstad