Introduction

Licensing in Engineering, Procurement, and Construction (EPC) projects presents unique challenges and opportunities for all parties involved. The process requires careful consideration of the roles and rights of licensors, licensees, and EPC contractors, with a focus on protecting proprietary knowhow, ensuring operational efficiency, and managing legal risks. This practice note explores practical approaches and internationally recognized best practices for structuring licensing arrangements in EPC projects, offering guidance on assignment/novation, sublicensing, and confidentiality provisions to achieve a balanced and effective outcome for all stakeholders.

Core Considerations

• Licensor’s interests: Protecting proprietary know‑how, limiting exposure to uncontrolled use, and ensuring the licence remains tied to the Licensee (the commercial party).
• Licensee’s interests: Ensuring the EPC contractor has sufficient rights to use technical information to design, construct, and commission the facility without delays or disputes.
• EPC contractor’s interests: Clarity of rights to use confidential information, avoiding liability for IP misuse, and ensuring smooth project execution.

Best Practice Options

(a) Assignment/Novation to EPC Contractor

• Risks:
  • Transfers the licence away from the Licensee, which may breach the Licensor’s intent that only the Licensee holds rights.
  • Complex to reverse after completion.
  • Licensor may resist, as it creates a direct contractual relationship with the EPC contractor.
• Use Case: Rarely recommended except in jurisdictions where construction law or financing structures require direct licence holding by the EPC.

(b) Sub‑Licence to EPC Contractor

• Advantages:
  • Keeps the main licence with the Licensee.
  • EPC contractor gets defined rights to use confidential information and technical know‑how only for construction and commissioning purposes.
  • Easier to terminate once EPC obligations are complete.
• Best Practice:
  • Draft a restricted, project‑specific sub‑licence.
  • Limit scope: “solely for design, engineering, procurement, construction, commissioning of the Facility.”
  • Include flow‑down confidentiality obligations identical to the main licence.
  • Require EPC to return/destroy confidential information after completion.

(c) Apply Confidentiality Provisions Only

• Advantages:
  • Simpler: EPC contractor is not a licence holder.
  • Protects Licensor’s information by restricting disclosure.
• Risks:
  • EPC contractor may lack sufficient legal rights to “use” the information (beyond mere confidentiality).
  • Could expose Licensee to breach if EPC uses information without a formal right.
• Use Case: Works only if EPC contractor does not need to use technical know‑how directly (e.g., if Licensor provides turnkey equipment and EPC just integrates).

Recommended Best Practice (Internationally)

• Option (b): Sub‑Licence is the most common and practical approach.
  • It balances Licensor protection with EPC’s operational needs.
  • Keeps control with the Licensee, avoids unnecessary novation complexity, and ensures EPC has the rights it needs.
• Option (c): Confidentiality only can supplement the sub‑licence, but is insufficient on its own if EPC must actively use technical information.
• Option (a): Assignment/Novation is generally avoided unless financing or regulatory structures demand it.

Practical Clauses to Include

• Purpose limitation: EPC may use confidential information only for construction/commissioning.
• No transfer of ownership: All IP remains with Licensor.
• Return/Destruction obligation: EPC must return or destroy confidential information post‑completion.
• Audit/inspection rights: Licensor may verify compliance.
• Indemnity: EPC indemnifies Licensee for misuse of confidential information.
• Survival clauses: Confidentiality obligations survive completion.

Conclusion

In conclusion, licensing in EPC projects requires a careful balance between protecting proprietary rights and enabling effective project execution. The restricted sub-licence model with robust confidentiality provisions internationally stands out as the best practice, providing clarity, control, and operational flexibility. While assignment or novation is less common and confidentiality-only approaches may be insufficient alone, combining these strategies thoughtfully ensures smoother project delivery and risk management.

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.