Liability of the Licensor

The licensee should ensure, that the licensor commits to liability for validity of the licensee’s rights within the specified territory, and that they do not infringe the intellectual property rights of third parties.

When granting licenses, the licensor must take into account all previously concluded license agreements. For example, if the licensor has granted an exclusive license covering Finland, it is not possible to grant an overlapping license to a third party. Moreover, if the licensed product contains a part, which has been licensed by a third party, then the licensor is not allowed to grant a greater right to the product than what it has obtained pursuant to the license agreement with such third party. In other words, the licensor may not grant a better right than it holds itself.

License agreements often contain a clause whereby the licensor commits to indemnify for all damages incurred due to an infringement by the licensed object of intellectual property rights of third parties. Agreeing to such commitments should be carefully considered, as the damages and legal expenses may amount to a considerable aggregate. The greater the geographical application of the license, the greater such risk is. For example, it may be difficult for a Finnish company to ensure in advance that its product will not infringe any intellectual property rights in Asia. If such a clause is nevertheless included in the agreement, the licensor should, at least, seek to exclude liability for indirect damages, and set a cap in euros on the aggregate liability.

From the licensor’s point of view, it is recommendable to exclude indirect damages and set a cap on liability, whenever possible.

It is common in the ICT sector that liability for third party claims is unlimited, but limited for the licensee's own damages. Third party liability is normally conditional on prompt notification of the imminent claim, full control by the licensor over the handling of the claim and an undertaking by the licensee to assist, inter alia, by providing information. The means the licensor can use to remedy the infringement are also agreed, including the right to prohibit use if other reasonable means fail to remedy the infringement.