Introduction

Improvement and grant-back provisions are critical components of technology licence agreements that govern how innovations made after the licence is signed are handled. These clauses determine whether improvements made by the licensee must be shared back with the licensor and whether the licensor’s own improvements are made available to the licensee. Understanding how to draft these provisions effectively is essential to balance fairness, encourage innovation, and comply with competition law.

What Are Improvement & Grant-Back Provisions?

• Improvements: Any modifications, enhancements, or derivative innovations made to the licensed technology after the agreement is signed.
• Grant-back provisions: Clauses requiring the licensee to grant rights back to the licensor over improvements they make. Without such clauses, improvements generally belong to the licensee.

Typical Scope

• Licensee improvements:
  • May be required to be licensed back to the licensor (exclusive or non-exclusive), with rights to on-disclose to its other licensees.
  • Can cover patents, know-how, or process enhancements.
• Licensor improvements:
  • Often must be shared with the licensee to ensure they benefit from ongoing innovation.
  • May be limited to “substantial” or “relevant” improvements.

Best Practices in Drafting

• Define “improvements” clearly (e.g., technical modifications vs. new inventions).
• Reciprocity: Consider mutual obligations—licensor shares improvements, licensee grants back theirs.
• Scope of rights: Limit grant-backs to non-exclusive licences to avoid antitrust risks.
• Royalty treatment: Clarify whether improvements affect royalty rates.
• Territorial scope: Ensure obligations align with the geographic scope of the licence.
• Termination clauses: Specify what happens to improvements after the licence ends.

Competition Law Risks

• EU/UK perspective: Grant-back clauses are scrutinized under competition law.
  • Exclusive grant-backs may be seen as anti-competitive, discouraging licensee innovation.
  • Non-exclusive grant-backs are generally safer, as they do not prevent the licensee from exploiting their improvements.
• Risk of foreclosure: If the licensor gains control over all improvements, competitors may be excluded.
• Innovation chilling: Licensees may be discouraged from investing in R&D if they cannot benefit from their own improvements.

Duration of Provisions

• Best practice: Align with the licence term.
• Limited period: Some agreements restrict grant-back obligations to a defined number of years to reduce antitrust risk (i.e. ensuring that grant-back clauses do not create long-term barriers to competition or innovation).
• Perpetual obligations: Risky under competition law, especially if they extend beyond the licence term.
• Balanced approach: Improvements made during the licence term should be covered, but obligations should not extend indefinitely.

Comparison Table

Recommendation for practice:

• Use non-exclusive grant-back clauses.
• Limit obligations to the duration of the licence.
• Ensure reciprocity where commercially justified.
• Avoid vague definitions—be precise about what counts as an “improvement.”
• Conduct a competition law review before finalizing terms, especially in the EU/UK context.

Conclusion

Improvement and grant-back clauses play a pivotal role in technology licence agreements by defining rights and obligations related to innovations made post-agreement. Properly drafted provisions promote fairness, encourage ongoing innovation, and mitigate competition law risks. Parties should carefully balance the scope, duration, and reciprocity of these clauses to foster a collaborative and legally compliant licensing environment.

References

• https://www.wilsondutra.com/blog/ip-contract-myth-a-licensing-agreement-means-you-own-the-licensees-improvements/
• https://www.commercii.co.za/technology-licence-agreement-negotiations-best-practices/
• https://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=1560880&fileOId=1565455

Disclaimer

This practice note is for informational purposes only and does not constitute legal advice. Readers should consult qualified legal professionals for advice tailored to their specific circumstances.