Endeavouring to Escape from Under-Performing Licensees: The Meaning of Endeavour Clauses

Abstract

It is common practice in a wide variety of intellectual property license agreements governed by English law for the licensee to be granted an exclusive license to exploit IP within a defined territory for a defined period of time. One of the most common royalty payment mechanics in such license agreements is for the payment of an annual royalty calculated as a fixed percentage of annual sales turnover or of the net sales price of each “Licensed Product” sold within the territory. Other variations include royalties calculated by reference to unit production or share of net profits. The effect of all such percentage-based royalties is to give the licensor a direct commercial interest in the successful exploitation of the licensed IP: higher sales resulting in higher percentage-based royalties. Due to the exclusive nature of the license, it is equally important that the licensor is able to either (i) terminate the license agreement; or (ii) claim for lost royalties, should the licensee be unable or unwilling to properly exploit the licensed IP. Otherwise, the licensor may find itself trapped in a license agreement receiving significantly less royalties then the IP should be generating.

Keywords: under performing licensees, licence agreements, english law, licenced product, IP