4

Contract Law and Intellectual Property

Transactions: Research Perspectives
Jacques de Werra

Downloaded from https://academic.oup.com/book/41122/chapter/350438870 by guest on 03 September 2023

I. Introduction

Contract law is a key component of the intellectual property (IP) ecosystem: con-
tracts are the legal vehicles by which IP rights can be lawfully used by third par-
ties. Contracts are the essential tools by which IP owners can monetize their rights.
Making sure that contract law can perform these critical missions requires under-
standing the complex interactions between IP law and contract law. Analysing
these interactions is obviously not a new research venture.1 However, as will be
illustrated in this paper, there are still many areas that call for further research and
scientific activity. Exploring the interactions between IP and contract law is not
only scientifically relevant, but it also has a high practical significance because
of the uncertainty surrounding certain legal issues arising in (international) IP
transactions which generate high transaction costs.2 From a policy and regulatory
standpoint, there is a strong need to contribute to the reduction of the transaction
costs of IP-​related agreements.3
In spite of the key importance of contractual mechanisms for the commercial-
ization of IP rights, one must note (and regret) the almost complete lack of har-
monization of the substantive law and rules that are applicable to IP transactions
at the international level. There are indeed only very limited references to IP trans-
actions in international IP regulatory instruments.4 From this perspective, there is

1 See, e.g., Robert P. Merges, Contracting into Liability Rules: Intellectual Property Rights and Collective

Rights Organizations, 84 Cal. L. Rev. 1293, 1293–​393 (1996).

2 See, e.g., Sonia Baldia, The Transaction Cost Problem in International Intellectual Property Exchange

and Innovation Markets, 34 Nw. J. Int’l. L. & Bus. 1 (2013).

3 See Richard A. Posner, Transaction Costs and Antitrust Concerns in the Licensing of Intellectual

Property, 4 J. Marhsall Rev. Intell. Prop. L. 325 (2005), at 327 (‘an important focus of legal reform
should be on means of reducing intellectual property transaction costs’).
4 See, e.g., TRIPS: Agreement on Trade-​Related Aspects of Intellectual Property Rights, 15 April

1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, 1869 U.N.T.S. 299,
33 I.L.M. 1197 (1994) [hereinafter TRIPS]; TRIPS, art. 28(3) indicating very summarily that ‘Patent
owners shall also have the right to assign, or transfer by succession, the patent and to conclude li-
censing contracts’; see Marco Aleman, Patent Transactions: Limited Regulation in the Multilateral Legal
Framework and Diverse Legislation and Practice at the Country Level, in Accords de technologie
[Technology Transactions] 1 (Jacques de Werra ed., 2018), , the book is available in open access

Jacques de Werra, Contract Law and Intellectual Property Transactions: Research Perspectives In: Handbook on Intellectual
Property Research. Edited by: Irene Calboli, Maria Lillà Montagnani, Oxford University Press. © Jacques de Werra 2021.
DOI: 10.1093/​oso/​9780198826743.003.0005
68 Jacques de Werra

a significant gap between the (high) level of international harmonization of IP law

(resulting from the numerous international IP conventions including the TRIPS
and the various World Intellectual Property Organization (WIPO) IP treaties) and
the almost non-​existent level of harmonization of contract law with respect to IP
transactions.5 Contract law is and remains local (and is regulated mostly at the na-
tional level—​sometimes at the regional level). Contract law is further, deeply an-
chored in local legal cultures and traditions (civil law or common law) which make
international harmonization more complex, in spite of the fact that many IP trans-

Downloaded from https://academic.oup.com/book/41122/chapter/350438870 by guest on 03 September 2023

actions have a global reach.
Even if contract law were harmonized globally, this would not be sufficient be-
cause contract law is not the only applicable law in international IP transactions.
There are indeed many diverging local legal rules beyond contract law, particularly
those resulting from local IP laws,6 that can constitute a blocking factor hampering
the creation of a global IP transactional level playing field. It is regrettable in this
respect that the initiatives (and calls) made by leading experts of IP transactions for
harmonizing the law governing IP transactions at the international level have not
led to any major outcome (yet).7

II. The Differences and Interactions Between Intellectual

Property Law and Contract Law

The interactions between IP law and contract law are complex and manifold.
One area (of both practical and scientific interest) relates to the application
of the property-​r ights aspects of IP law in the context of IP transactions in
spite of the fundamental difference of nature between IP rights and contrac-
tual rights.

at: https://​archive-​ouverte.unige.ch/​unige:113029; in spite of the importance of international tech-

nology transfer agreements, there is no international harmonization of international technology
transfer agreements (it being noted that technology transfer is mentioned in TRIPS, arts. 7 and 66(2)).

5 By contrast to the harmonization or even unification of other areas of international contracts,

see, e.g., for the sale of goods, the well-​established United Nations Convention on Contracts for the
International Sale of Goods of 11 April 1980, 1489 U.N.T.S. 3, 19 I.L.M. 671.
6 See Michael Anthony C. Dizon, The Symbiotic Relationship between Global Contracts and the

International IP Regime, 4 J. Intell. Prop. L. & Prac. 559, 564 (2009).

7 This initiative has been pursued at the United Nations Commission on International Trade

Law (UNCITRAL); on this development, see Andrea Tosato, Intellectual Property License
Contracts: Reflections on a Prospective UNCITRAL Project, 4 U. Cin. L. Rev. (2018); see also Mark
Anderson, International IP Transactions: Arguments for Developing a UN Standard, in Accords
de technologie [Technology Transactions] 33 (Jacques de Werra ed., 2018), the book is
available in open access at: https://​archive-​ouverte.unige.ch/​unige:113029; and the blogpost of
Mark Anderson: https://​ipdraughts.wordpress.com/​2018/​01/​27/​potential-​un-​convention-​on-​ip-​
licensing/​.
 Contract Law and Intellectual Property Transactions 69

Even if the legal nature of IP rights is (still) debated among scholars (at least
under certain legal systems), IP rights are generally considered as property rights.8
The consequence of treating IP rights as property is, in particular, that IP rights can
be enforced against any third party,9 and they can be alienated.10
IP rights have an effect erga omnes (from the Roman law/​Latin terminology
meaning ‘against everyone’11) therefore IP rights are considered absolute rights
(i.e. they can be enforced against any third party). By contrast, as a matter of prin-
ciple,12 contract law and contractual rights (and obligations) apply only between

Downloaded from https://academic.oup.com/book/41122/chapter/350438870 by guest on 03 September 2023

the contracting parties and consequently have no (positive or negative) impact on
third parties: they have an effect inter partes (from the Roman law/​Latin termin-
ology meaning ‘between the parties’)13 so that they are considered as relative rights
(i.e. they are binding only on selected parties).
This basic and clear difference between absolute property-​based IP rights and
relative contract-​based rights (and obligations) can lead to complex interactions in
the context of IP transactions in various circumstances, which evidence the need
for (continued) scientific activity on these challenging topics.
One facet of the issue is whether and to what extent freedom of contract (which
is a key tenet of contract law at the global level) can affect the IP system, specifically
by making changes to the property aspects of the IP system, which can constitute a
form of private ordering. This private ordering allows IP owners to attempt to ob-
tain more IP-​like protection by various means, including by contract beyond the
protection that they benefit from the IP statutory regime of protection.14
As will be illustrated below in the non-​exhaustive research questions that will
be discussed (see Section III below), it is essential that the analysis of the legal is-
sues that lie at the intersection between IP law and contract law shall take into ac-
count the relevant contract law doctrines and methodologies. The methodological

8 Treating IP rights as property may still raises questions as to the consequences of such treatment;

for a recent interesting discussion, see Ole-​Andreas Rognstad, Property Aspects of Intellectual
Property (2018).
9 See, e.g., Robert P. Merges, What Kind of Rights Are Intellectual Property Rights?, in The Oxford

Handbook of Intellectual Property Law 60 (Rochelle Dreyfuss & Justine Pila eds., 2018)
(‘Property bestows rights; and thus, logically, it creates duties. Traditionally we call the entity that holds
the rights the “owner”. But who holds the duties? Everyone else does. Everyone must respect the prop-
erty right. That’s what it means for it to be ‘good against the world’.).
10 Id. at 70 (‘IP rights come with significant powers, perhaps the most important being the power to

alienate, and to grant rights to third parties generally’.); see generally Robert P. Merges, Justifying
Intellectual Property (2011); the principle of alienability is not necessarily applicable to all rights
(particularly not to moral rights that are generally considered to be inalienable).
11 See Merges, supra note 9, at 62 (‘Property rights are “good against the world”.’).
12 There are exceptions to this principle, for instance in the case when a contract grants contractual

rights to a third party (who can thus become a third party beneficiary of the contract); this scenario will
be explored and illustrated by reference to the discussion about FRAND licensing and about the legal
nature of FRAND commitments, see discussion infra Section III.B.2.
13 According to the doctrine ‘Res inter alios acta, aliis nec nocet nec prodest’ (Latin for ‘a thing done

between others does not harm or benefit others’).

14 See private ordering discussion infra Section III.A.1.
70 Jacques de Werra

challenge can sometimes lie in the proper identification and application of the rele-
vant general principles of contract law. Other methodological challenges can also
arise (depending on the legal system), including whether IP contracts, in addition
to being governed by the general principles of contract law, are governed by spe-
cific sets of statutory rules. In certain contract law systems, specific statutory rules
govern certain types of IP transactions, such as licensing or franchising agreements,
while in other systems, there are no specific rules so that these IP transactions (and
specifically IP licensing15) may be governed by analogy by rules applicable to other

Downloaded from https://academic.oup.com/book/41122/chapter/350438870 by guest on 03 September 2023

types of regulated contracts.

III. Research Questions

The interactions between IP and contracts are multifaceted and raise numerous
methodological challenges and doctrinal questions. This short piece will focus on a
few of them (obviously without claiming to be exhaustive).16
These legal issues can be classified into two categories depending on whether
they relate to the internal relationship between the parties to an IP transaction (see
Section III.A) or whether they affect external third parties (see Section III.B).17 In
spite of their classification, these issues all have in common that they raise intricate
legal questions at the intersection between IP and contract law. These issues also

15 See the major scientific contributions of Mary-​Rose McGuire, Die Lizenz, Eine

Einordnung in die Systemzusammenhänge des BGB und des Zivilprozessrechts (2012);

Reto M. Hilty, Lizenzvertragsrecht, Systematisierung und Typisierung aus schutz-​und
schuldrechtlicher Sicht (2000); Louis Pahlow, Lizenz und Lizenzvertrag im Recht des
Geistigen Eigentums (2006).
16 One area that will not be discussed here relates to the creation of security interests on IP rights,

which has attracted a lot of scientific attention (which is most legitimate in view of its doctrial com-
plexity and of its key importance in practice); this was discussed in the context of the UNCITRAL work
which led to the adoption of its (non-​binding) UNCITRAL Legislative Guide on Secured Transactions,
United Nations Commission on International Trade Law (UNCITRAL), https://​www.uncitral.
org/​pdf/​english/​texts/​security-​lg/​e/​09-​82670_​Ebook-​Guide_​09-​04-​10English.pdf and to the sub-
sequent adoption (because this document did not focus on security interests on IP rights) of the
UNCITRAL Legislative Guide on Secured Transactions -​Supplement on Security Rights in Intellectual
Property, UNICITRAL United Nations Commission on International Trade Law (2011),
https://​www.uncitral.org/​pdf/​english/​texts/​security-​lg/​e/​10-​57126_​Ebook_​Suppl_​SR_​IP.pdf; the
adoption of these documents has not reduced the scholarly relevance of this topic, as evidenced by
various recent publications, see, e.g., Peter G. Picht, Vom materiellen Wert des Immateriellen –​
Immaterialgüterrechte als Kreditsicherheiten im nationalen und internationalen
Rechtsverkehr, Habilitation (2018). For a brief account of the history and mandate of the
UNCITRAL and the emergence of the UNICTRAL Guide, see generally Andrea Tosato, The UNCITRAL
Annex on Security Rights in IP: A Work in Progress, 4 J. Intell. Prop. L. & Prac. 743, 743–​50 (2009).
17 It being noted that these two subcategories are not fully distinguishable given that certain issues

that affect essentially the parties to an IP transaction can also have an impact on third parties. By way of
example, the issue whether the parties to an IP transaction (say an IP license agreement) can contractu-
ally decide when the rights of the licensor on the licensed good (e.g. a book) shall be exhausted (exhaus-
tion of the right of distribution/​first sale) has an impact on the contracting parties (i.e. the licensor and
the licensee) but also has an impact on third parties (specifically the acquirors of the licensed good who
could benefit from the exhaustion of the rights).
 Contract Law and Intellectual Property Transactions 71

illustrate the difficulty in distinguishing between the respective scope and reach of
IP law and of contract law as well as the importance of using contract law doctrines
and methodologies in addressing IP transactional issues.

A. Research Questions Relating to the Relationship between the

Parties to an Intellectual Property Transaction

Downloaded from https://academic.oup.com/book/41122/chapter/350438870 by guest on 03 September 2023

This Section will discuss two areas evidencing the (sometimes) conflicting inter-
actions between IP law and contract law in the internal relationships between
the parties to an IP transaction. Though these issues may potentially arise in dif-
ferent types of IP transactions, the focus will be on IP licensing which is the most
common form of IP transactions. This Section will first discuss the phenomenon
of private ordering as it can result from IP transactions (see Section III.A.1). It will
then turn to the issue of the enforcement of the licensed IP rights against the li-
censee (see Section III.A.2).

1. Intellectual Property Transactions and Private Ordering

The emergence of ‘private orderings’ in the field of IP law is a well-​identified and al-
ready quite carefully observed phenomenon.18 The risk posed by private ordering
in IP law is that private sources of control and of power may negatively affect the
balance of competing rights and interests, which is anchored in the IP system and
which may be endangered by such private ordering (particularly for the protec-
tion and preservation of the public domain). Contracts are a natural source of pri-
vate ordering. By entering into a contract, the contracting parties essentially define
their own legal universe. In an IP setting, contracting parties may attempt to dero-
gate from the statutory regime of IP protection and to agree on an allocation of
contractual rights and obligations that may significantly differ from the allocation
that results from the IP system. Private ordering is, however, not limited to con-
tracts and to legal transactions. Non-​legal sources of control and power can also be
the source of private ordering. Technology (and specifically technological protec-
tion measures (TPM)) can indeed define how an IP protected good (specifically a
copyrighted work) can be accessed and used irrespective of what IP law and specif-
ically copyright law would say.19
Private orderings are of an even higher relevance in our digital and connected
world as a result of the omnipresent (and potentially oppressive) power of global
Internet platforms to dictate unilaterally the terms and conditions to their (billions

18 See generally Reto M. Hilty, Intellectual Property and Private Ordering, in The Oxford Handbook

of Intellectual Property Law 898 (Rochelle Dreyfuss & Justine Pila eds., 2018).
19 Id. at 900 (describing that ‘right holders can use technological protection measures (TPMs) to pro-

hibit certain uses of the subject matter of protection or to impose a specific behavior on users or they
can restrain users contractually and that “[t]‌he two mechanisms do not exclude one another” ’).
72 Jacques de Werra

of) users. This power generates a growing scrutiny and triggers more intensive gov-
ernmental actions and litigation way beyond the area of IP law (including data pro-
tection law, consumer protection law, and antitrust law).20
Given the importance of private ordering and of contracts in the IP ecosystem,
there remains a need to assess whether and to what extent contract law and con-
tractual obligations affect the balance between competing rights and interests at the
core of the IP system. This raises the issue of the limits of the freedom of contract
with respect to IP and specifically to copyright transactions/​copyright licensing.

Downloaded from https://academic.oup.com/book/41122/chapter/350438870 by guest on 03 September 2023

As a matter of principle, the general view is that contracts cannot create add-
itional rights for the benefit of the IP owners that would go beyond the statutorily
granted IP rights. This could, by way of illustration, result from a contractual pro-
vision in a license agreement that would purport to exclude the fair use of the li-
censed work by the licensee, or of another use that otherwise would be covered
by an exception or limitation to the scope of protection under copyright law. The
view is generally expressed that copyright exceptions and limitations are manda-
tory therefore they are not waivable by contract.21
In other words, contracts cannot circumvent and trump the mandatory nature
of (certain) copyright exceptions and limitations and, more generally, of other ex-
ceptions and limitations anchored in the various IP statutory regimes of protec-
tion.22 This issue whether certain IP core values and principles that are reflected in
IP laws can be amended (or not) by contract is not limited to copyright law and can
also affect other areas of IP law. The question particularly arises with respect to the
doctrine of exhaustion of IP rights (or first sale) by which the first sale of a tangible
product incorporating the IP at issue (e.g. a book) exhausts the right of control of
the IP owner over that tangible product (so that that product can be resold), irre-
spective of the contractual provisions that may aim at restricting the subsequent
sale and use of such tangible product.23 The issue may also arise with respect to

20 See Jane Radin & R. Polk Wagner, The Myth of Private Ordering: Rediscovering Legal Realism in

Cyberspace, 73 Chi.-​Kent L. Rev. 1295, 1312 (1998); see also Luca Belli & Jamila Venturini, Private
Ordering and the Rise of Terms of Service as Cyber-​Regulation, 5 Internet Pol’y Rev. (2016).
21 For an analysis, see Lucie M.C.R. Guibault, Copyright Limitations and Contracts, An

Analysis of the Contractual Overridability of Limitations on Copyright (2002); Jacques de

Werra, Moving Beyond the Conflict Between Freedom of Contract and Copyright Policies: In Search of a
New Global Policy for Information Licensing Transactions, 25 Colum. J. L. & Arts 239 (2003).
22 See, e.g., EU Directive (EU) 2019/​790 of 17 April 2019, on copyright and related rights in the

Digital Single Market at art. 7, providing that ‘[a]‌ny contractual provision contrary to the exceptions
provided for in Articles 3 [Text and data mining for the purposes of scientific research], 5 [Use of works
and other subject matter in digital and cross-​border teaching activities] and 6 [Preservation of cultural
heritage] shall be unenforceable’.
23 In the case Impression Products, Inc. v. Lexmark International Inc., 581 U.S. 1523 (2017); 137 S.Ct.

1523 (2017), the US Supreme Court decided that (at 1526) ‘a patentee’s decision to sell a product ex-
hausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose.
As a result, even if the restrictions in Lexmark’s contracts with its customers were clear and enforceable
under contract law, they do not entitle Lexmark to retain patent rights in an item that it has elected to
sell’; the US Supreme Court consequently made the distinction between IP remedies and contractual
remedies, which is frequently complex to make; this article will not discuss further the doctrine of ex-
haustion. On this issue, see generally Shubha Ghosh & Irene Calboli, Exhausting Intellectual
 Contract Law and Intellectual Property Transactions 73

certain IP rights that may be considered as inalienable under certain copyright re-
gimes (such as moral rights).
Other sets of mandatory legal principles can similarly preclude contracts from
unduly disrupting the delicate balance of competing rights and interests that is
needed in order to promote and maintain an innovation-​friendly ecosystem.
Competition law plays a major role in this context.24

2. The Enforcement of the Licensed Intellectual Property Rights against the

Downloaded from https://academic.oup.com/book/41122/chapter/350438870 by guest on 03 September 2023

Licensee: Intellectual Property Infringement and/​or Contractual
Remedies?
Given their property-​nature, IP rights can be enforced against anyone.25 They can
thus also be enforced against a contractual partner of the IP owner in certain cir-
cumstances. This can particularly happen to an IP licensee that would infringe on
the IP rights of its licensor, for instance if the ex-​licensee continues to use the previ-
ously licensed IP right after the term of the license.26 This issue may seem trivial but
it remains quite complex (particularly in light of the differences that exist between
national and regional approaches and solutions). It appears essential to rely on a
contract law methodology in order to help frame and address the relevant legal
question at issue. This issue is essentially to define whether and under what cir-
cumstances the licensor can benefit from IP remedies against the licensee in case of
breach of an IP license agreement.
This issue was at the core of the dispute that recently went up to the Court of
Justice of the European Union (CJEU) in Case C-​666/​18, IT Development SAS
v. Free Mobile SAS, in which the CJEU rendered its judgment on 18 December 2019.
In this case,27 the Tribunal de Grande Instance of Paris declared by judgment
of 6 January 2017, the claims brought by IT Development (which claimed that Fee

Property Rights: A Comparative Law and Policy Analysis (2018), and The Research
Handbook on Intellectual Property Exhaustion and Parallel Imports (Irene Calboli &
Edward Lee eds., 2016); the application of the doctrine of exhaustion in the digital environment raises
additional complexities that will not be discussed here, see the recent judgment of the CJEU in Case
C-​263/​18, Nederlands Uitgeversverbond, Groep Algemene Uitgevers v. Tom Kabinet Internet BV, Tom
Kabinet Holding BV, Tom Kabinet Uitgeverij BV of 19 December 2019; see also Caterina Sganga, A Plea
for Digital Exhaustion in EU Copyright Law, 9 J. Intell. Prop. Info. Tech. & Elec. Com. 211 (2019).

24 TRIPS, supra note 4, art. 40(1); see the recent OECD report, Licensing of IP Rights and Competition

Law, 2019, Organisation for Economic Co-​operation & Development, https://​one.oecd.org/​

document/​DAF/​COMP(2019)3/​en/​pdf; the interaction between competition law and IP licensing is
one aspect of the more fundamental interactions between competition law and IP law which is also
quite intricate, see, e.g., Alan Devlin, Antitrust and Patent Law (2016); see also Steven Anderman &
Ariel Ezrachi, Intellectual Property and Competition Law: New Frontiers (2011).
25 See Merges, supra note 9.
26 See, e.g., Palmer/​ Kane LLC v. Rosen Book Works LLC, 204 F. Supp. 3d 565, 581 (S.D.N.Y.
2016) (holding that the defendant’s use of an image after the license expired infringed the plaintiff ’s
copyright).
27 Case C-​ 666/​18, IT Development SAS v. Free Mobile SAS, [17] (summary of the national
proceedings).
74 Jacques de Werra

Mobile had infringed on its copyright on the licensed software on the basis of tort
law) rendered Free Mobile’s tort liability inadmissible and ordered IT Development
to pay the costs. The court held that there are two separate sets of rules relating to li-
ability in intellectual property matters. The first being tortious liability in the event
of infringement of the exploitation rights of the author of the software, as deter-
mined by law. The other being contractual liability in the event of infringement of a
copyright reserved by contract. The court held that, in the present case, Free Mobile
clearly failed to perform its contractual obligations, providing a basis for an action

Downloaded from https://academic.oup.com/book/41122/chapter/350438870 by guest on 03 September 2023

for contractual liability, and not for the tortious act of infringement of software
copyright. IT Development brought an appeal against that judgment before the
Cour d’appel de Paris (Court of Appeal, Paris, France), requesting the latter to refer
a question to the Court of Justice for a preliminary ruling, to set aside the judgment
at first instance, and to declare the infringement proceedings which it had brought
to be admissible. IT Development also seeks a declaration that the modifications
to the software made by Free Mobile constitute copyright infringements, that Free
Mobile be ordered to pay IT Development the sum of €1.44 million as compensa-
tion for the damage suffered, and, in the alternative, that Free Mobile be ordered,
on a contractual basis, to pay IT Development the sum of €840,000 as compensa-
tion for that damage.
The following question was submitted to the CJEU:

Does a software licensee’s non-​compliance with the terms of a software licence

agreement (by expiry of a trial period, by exceeding the number of authorised
users, or some other limit, such as the number of processors which may be used
to execute the software instructions, or by modifying the source code of the
software where the licence reserves that right to the initial rightholder) con-
stitute an infringement (for the purposes of Directive [2004/​48]) of a right of
the author of the software that is reserved by Article 4 of Directive [2009/​24]
on the legal protection of computer programs, or may it comply with a separate
system of legal rules, such as the system of rules on contractual liability under
ordinary law?28

The CJEU decided in its judgment that:

Directive 2004/​48/​EC . . . and Directive 2009/​24/​EC . . . must be interpreted as

meaning that the breach of a clause in a licence agreement for a computer pro-
gram relating to the intellectual property rights of the owner of the copyright of
that program falls within the concept of ‘infringement of intellectual property
rights’, within the meaning of Directive 2004/​48, and that, therefore, that owner

28 Id. at para. 25.

 Contract Law and Intellectual Property Transactions 75

must be able to benefit from the guarantees provided for by that directive, regard-
less of the liability regime applicable under national law.

The CJEU thus left it to the Member States to decide which liability regime (con-
tract or tort liability) shall apply, provided however that the ‘guarantees’ provided
in the Directive 2004/​48 shall be available (which means in practice that the tort/​
IP infringement liability regime will generally apply given that a standard con-
tract liability regime will not provide for the rights granted under the Directive).29

Downloaded from https://academic.oup.com/book/41122/chapter/350438870 by guest on 03 September 2023

However, based on its broad (and potentially unprecise) wording, this judgment
could potentially be understood as meaning that any breach of any clause in a
software license agreement could trigger IP infringement remedies, which does
not seem adequate in all circumstances.30 It rather appears legitimate to consider
that this judgment (and its holding) of the CJEU applies only to cases where the
licensee’s activities—​without the license—​would infringe on the IP rights of the
licensor.31 In this respect, the question arises whether it is contractually possible
for the parties to decide that the grant of the license shall be subject to a contractual
condition, the breach of which could (automatically) annul the license. US courts
seem to adopt this contract law approach by distinguishing between the breach
of a condition and the breach of a contractual covenant, which trigger different
legal consequences: only the breach of a condition can lead to IP infringement
remedies.32
This issue demonstrates that a contract law methodology (based on the appli-
cation of contract law rules, principles, and categories, for example the distinction
between conditions and covenants) can be of significant value in order to address
and frame fundamental IP transactional issues, in this case by helping to identify
the remedies that a licensor can have against its licensee in case of violation of the
license agreement.

29 See Christophe Caron, Responsabilité délictuelle pour contrefaçon ou responsabilité contractuelle

pour inexécution?, CJUE, 5e ch., 18 déc. 2019, aff. C-​666/​18, IT Development SAS c/​Free Mobile SAS,
Communication –​ Commerce Électronique, No. 3—​Mar. 2020, 341.
30 See Peter Ling, An Infringement of IP Rights that is also a Breach of Contract is still an Infringement

of IP Rights (15 January 2020), http://​ipkitten.blogspot.com/​2020/​01/​an-​infringement-​of-​ip-​rights-​

that-​is.html; see also Jacques de Werra, Intellectual Property Transactions: What We Can (and Should)
Learn from Contract Law for IP Licensing, 6(11) GRUR International 1095–​1096 (2020).
31 See Caron, supra note 29.
32 For a discussion, see generally Robert W. Gomulkiewicz, Conditions and Covenants in License

Contracts: Tales from a Test of the Artistic License, 17 Tex. Intell. Prop. L. J. 335 (2009); for copyright
licenses, see, e.g., Jacobsen v. Katzer, 535 F.3d 1373, 1382 (Fed. Cir. 2008) (holding that a software license
was expressly conditioned on the licensee including copyright notices in distributed copies of its soft-
ware); for patent licenses, see Kenall Mfg Co. v. Cooper Lighting, LLC, N.D. Ill. 2018, 2018 WL 3046935;
for a short comment, see John C. Paul, D. Brian Kacedon, et al., Breach of Terms in a Patent License
Agreement May Not Give Rise to Infringement Claims Unless Terms Are a Condition of the License (2
October 2018), https://​www.finnegan.com/​en/​insights/​articles/​breach-​of-​terms-​in-​a-​patent-​license-​
agreement-​may-​not-​give-​rise-​to-​infringement-​claims-​unless-​terms-​are-​a-​condition-​of-​the-​license.
html.
76 Jacques de Werra

B. Research Questions Relating to the Impact of Intellectual

Property Transaction on Third Parties

The interactions between IP law and contract law do not impact only the parties in
an IP transaction. These interactions can indeed also have multiple and significant
external consequences on third parties. This Section will discuss two of them: the
first one relates to the enforcement of the licensed IP rights by (exclusive) licensees
against third party infringers (see Section III.B.1), and the second one discusses

Downloaded from https://academic.oup.com/book/41122/chapter/350438870 by guest on 03 September 2023

one contractual issue arising in the context of FRAND licensing, which is to ana-
lyse the contractual FRAND obligations of owners of standard essential patents
(see Section III.B.2).

1. Enforcement of the Licensed Intellectual Property Rights by (Exclusive)

Licensees against Third Party Infringers
The issue whether, and in the affirmative, under what conditions exclusive IP licen-
sees can enforce the licensed IP rights against third party infringers is an interesting
example of the potential impact of an IP transaction on third parties, specifically
on third parties (allegedly) infringing the licensed IP rights. This issue revisits—​
in the context of IP transactions—​the traditional contract law canon according to
which contracts do not have any impact on third parties.33 This is a challenging
question also because it illustrates the potential limits of the contractual freedom
of the parties to the license agreement to independently decide this issue. Certain
courts have indeed held that the contracting parties cannot validly decide on this
issue by stating that contractual covenants between the parties (to a license agree-
ment) may ‘regulate the duties between the licensor and licensee to implement the
rights of the parties’, but that ‘a contract cannot change the statutory requirement
for suit to be brought by the “patentee”.’34
This issue is of utmost dogmatic relevance because it questions the legal nature
of the rights obtained by an (exclusive) licensee.35 Is it only a contractual right and
thus a relative right (i.e. a right which can be enforced only against specific third
parties, in this case against the contracting party) which has an impact only be-
tween the parties (inter partes), or is it an absolute right which can thus be im-
posed to everyone (erga omnes), including to third party infringers of the licensed
IP rights? This raises the broader issue of whether and under what conditions an IP
license can be opposed to other third parties (beyond third party infringers) spe-
cifically those who subsequently acquire rights on the licensed IP rights.36

33 Supra note 13.

34 Ortho Pharm. Corp. v. Genetics Institute, Inc., 52 F.3d 1026, 1034 (Fed. Cir. 1995) (citing Ind.
Wireless Co. v. Radio Corp., 269 U.S. 459 (1926), at 469).
35 For an analysis (under Swiss law), see Conrad Weinmann, Die Rechtsnatur der Lizenz

(1995).
36 For a recent discussion (under German law), see Lea Tochtermann, Sukzessionsschutz im

Recht des Geistigen Eigentums: Eine Untersuchung unter besonderer Berücksichtigung

 Contract Law and Intellectual Property Transactions 77

The issue is made even more complex because of the diversity of local laws with
respect to international IP licensing agreements covering various territories and
thus governed by various regional or national IP laws.37 There is consequently an
important need to pursue scholarly work on these topics in order to help shape
global solutions and avoid or at least reduce the need to litigate them around the
world.38

2. Fair Reasonable and Non-​Discriminatory (FRAND) Licensing: What Are

Downloaded from https://academic.oup.com/book/41122/chapter/350438870 by guest on 03 September 2023

the Contractual FRAND Obligations of Standard Essential Patents (SEP)
Owners?
The conditions and modalities of licensing of Standard Essential Patents (SEPs)
under Fair Reasonable and Non-​Discriminatory (FRAND) terms and conditions
are intensively debated by courts, policy-​makers, and scholars alike. To be clear, the
debates are not limited to the interaction between IP (patent law) and contract law,
but have other significant dimensions (specifically a competition law dimension
that shall not be discussed here). The issue of focus here relates to the legal nature
of the FRAND commitment made by owners of SEPs. This a (classical) contract
law question for which contract law methodologies could and should be applied in
order to help solve a pressing IP issue.
FRAND licensing demonstrates the critical importance of the regulatory eco-
system applicable to certain critical communication industries by which certain
industries must accept certain obligations when they participate in the develop-
ment and adoption of technological standards by standards setting organizations
(SSOs). The process of standardization defines common technical standards39

international-​privatrechtlicher Zusammenhänge (2018), and (for copyright licences),

Tobias Rothkegel, Die Verkehrsfähigkeit und Bestandssicherheit urheberrechtlicher
Lizenzen: Eine Untersuchung der Disparität zwischen gesetzlichem Rahmen und
steigender volkswirtschaftlicher und gesellschaftlicher Relevanz der Lizenzierung
Geistigen Eigentums (2019).

37 See Johnathon Liddicoat, Standing on the Edge: What Type of ‘Exclusive Licensees’ Should Be Able

to Initiate Patent Infringement Actions?, 48 Int’l Rev. Intell. Prop. & Competition L. 626 (2017);
Jacques de Werra, Can Exclusive Licensees Sue for Infringement of Licensed IP Rights? A Case Study
Confirming the Need to Create Global IP Licensing Rules, 30 Harv. J. L. & Tech. 189 (Special Symposium
Issue 2017).
38 See, e.g., the two recent UK cases commented in Johnathon Liddicoat & Jacques de Werra, When

can Exclusive Licensees Initiate Patent Infringement Proceedings?—​Lessons for Global IP Licensing
Transactions from Two Recent UK Cases, 14 J. Intell. Prop. L. & Prac. 2, 2–​4 (2019); see also the
Australian case: Vald Performance Pty. Ltd. v. Kangatech Pty. Ltd. [2019] FCA 1880 (Austl.).
39 The interaction between IP law (and specifically patent law) and standardization is complex. See

the definition of technical standards in Understanding Patents, Competition and Standardization in

an Interconnected World, International Telecommunication Union (ITU) (1 July 2014), http://​
www.itu.int/​en/​ITU-​T/​ipr/​Pages/​Understanding-​patents,-​competition-​and-​standardization-​in-​
an-​interconnected-​world.aspx [hereinafter the ITU Report], at 15; certain parts of the analysis pre-
sented here are derived from previous publications, specifically: Jeff Dodd & Jacques de Werra, The
Need for a Global Framework for Knowledge Transactions: Cross Border Licensing and Enforcement, in
WTO: Edited Book on Trade in Knowledge (Antony Taubmann ed., forthcoming 2021): Jacques
de Werra, Patents and Trade Secrets in the Internet Age, 134 Revue de Droit Suisse 146–​64 (2015).
78 Jacques de Werra

that must be used in order for a product to comply with the relevant technological
standard (for instance Wi-​Fi).40 Technical standards integrate patented technolo-
gies owned by a wide range of companies, which thus become ‘standard essential
patents’ (SEPs),41 in the sense that any company wishing to use and implement the
relevant standards in its products (which is then called an implementer) need a li-
cence to use those patents.42 This creates the risk of ‘patent holdup’, i.e. the risk that
the owners of such SEPs may unduly block the use of their patented technology by
implementers through the use of (or threat of) infringement lawsuits unless they

Downloaded from https://academic.oup.com/book/41122/chapter/350438870 by guest on 03 September 2023

get potentially excessive royalty payments from implementers who want to comply
with the relevant technical standard.43 As a result, this type of behaviour has been
scrutinized under competition law,44 and measures have been taken to prevent
such potentially abusive conduct.45
The SSOs that set or develop technical standards frequently develop IP rights
policies in order to address such potentially abusive behaviours.46 Under such
40 Standards are of essential importance in the Information and Communication Technology (ICT)

industry. See ITU Report supra note 39, at 23–​24, with a chart listing examples of international SSOs
and consortia and their standards of relevance to ICTs.
41 For a general presentation, see (among multiple other publications) the comprehensive Report

prepared for the European Commission (Directorate-​General for Enterprise and Industry), Patents and
Standards: A Modern Framework for IPR-​based Standardization (2014) http://​ec.europa.eu/​growth/​in-
dustry/​intellectual-​property/​patents/​standards/​index_​en.htm.
42 See the documents and presentations made at the Information Session on Patents and Standards

(WIPO/​IS/​IP/​GE/​18), WIPO, http://​www.wipo.int/​meetings/​en/​details.jsp?meeting_​id=47226 and

the dedicated website, Standards and Patents, WIPO, http://​www.wipo.int/​patent-​law/​en/​develop-
ments/​standards.html (last visited 9 April 2020); see also the interesting guide published by the Japan
Patent Office in June 2018: Guide to Licensing Negotiations involving Standard Essential Patents, Japan
Patent Office, https://​www.jpo.go.jp/​e/​support/​general/​sep_​portal/​ (last visited 9 April 2020); see
also Commission Communication, Defining the Union’s approach to essential patents to standards of 29
November 2017, COM (2017) 712 final, https://​ec.europa.eu/​docsroom/​documents/​26583?locale=en;
for patents and standards, see the report Standards and Patents (doc. ref. SCP/​13/​2, 13th Sess.), WIPO
Standing Committee on Patents (23–​27 March 2009), http://​www.wipo.int/​edocs/​mdocs/​scp/​en/​
scp_​13/​scp_​13_​2.pdf.
43 For a short description of the issue, see Judge Birss in Unwired Planet International Ltd. v. Huawei

Technologies Co. Ltd. & Anor [2017] EWHC (Pat) 711 [83].
44 See ‘Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European

Union to horizontal co-​operation agreements (Text with EEA relevance), OJC 11, 14.1.2011, at 285
para. 269; for a (simplified) presentation of the key competition law issues of SEPs, see the Competition
policy brief, Standard-​essential patents (June 2014), European Commission, http://​publications.
europa.eu/​resource/​cellar/​c57ffbf7-​9aeb-​11e6-​868c-​01aa75ed71a1.0001.01/​DOC_​1.
45 For an analysis, see Michela Angeli, Willing to Define Willingness: The (Almost) Final Word on SEP-​

Based Injunctions in Light of Samsung and Motorola, 6 J. Eur. Competition L. & Prac. 221 (2015).
46 This is what was done (by way of illustration) by the European Telecommunications Standards

Institute (ETSI) in its IPR Policy. See ETSI Intellectual Property Rights Policy (Annex 6 of the Rules of
Procedure, ‘ETSI IPR Policy’) (4 December 2019), http://​www.etsi.org/​images/​files/​IPR/​etsi-​ipr-​policy.
pdf; see also Intellectual Property Rights, ETSI, http://​www.etsi.org/​index.php/​about/​iprs-​in-​etsi
(last visited 9 April 2020). The ETSI IPR Policy therefore provides for a mechanism of declaration by
which the owners of standard essential patents commit to make their patents available to willing li-
censees under FRAND terms. See 6.1 of the ETSI IPR Policy (‘[w]‌hen an ESSENTIAL IPR relating
to a particular STANDARD or TECHNICAL SPECIFICATION is brought to the attention of ETSI,
the Director-​General of ETSI shall immediately request the owner to give within three months an ir-
revocable undertaking in writing that it is prepared to grant irrevocable licenses on fair, reasonable
and non-​discriminatory (“FRAND”) terms and conditions under such IPR’.). Annex A to the ETSI
IPR Policy (entitled ‘IPR Licensing Declaration Forms’) contains different forms to be completed and
 Contract Law and Intellectual Property Transactions 79

policies, ‘participants wishing to have their IPR included in the standard [are re-
quested] to provide an irrevocable commitment in writing to offer to license their
essential IPR to all third parties on fair, reasonable, and non-​discriminatory terms
(“FRAND commitment”).’47
Plainly, the central element of the system is the very notion of FRAND li-
censing;48 what shall be considered fair, reasonable, and non-​discriminatory
licensing terms and conditions remains uncertain as of today.49 However, a pre-
liminary legal issue relates to the legal nature and enforceability of the commit-

Downloaded from https://academic.oup.com/book/41122/chapter/350438870 by guest on 03 September 2023

ments (‘undertaking’50) that are made by the owners of the relevant SEPs to the
SSOs under the applicable governing law.51
By stating that the owners of SEPs are ‘prepared to grant irrevocable licenses’52
under their SEPS to third party implementers (in the formal undertaking that they
make to the SSOs), the issue is whether third party beneficiaries can request the
performance of such obligation, which, in turn, requires assessing whether these
potential licensees (which have not directly entered into any contract with the
owner of the relevant SEPs) can be considered as third party beneficiaries. This
issue, which obviously depends on the interpretation of the relevant declaration
under the applicable law, remains disputed,53 it being noted that granting—​by

signed by the owner of the relevant IP rights under which such IP owner is invited to make a formal and
binding statement according to which ‘it and its AFFILIATES are prepared to grant irrevocable licenses
under its/​their IPR(s) on terms and conditions which are in accordance with Clause 6.1 of the ETSI IPR
Policy’. See http://​www.etsi.org/​images/​files/​IPR/​etsi-​ipr-​form.doc [hereinafter ETSI Declarations].

47 See Guidelines, supra note 44, at para. 285.

48 From a Swiss perspective, see Rolf H. Weber, Competition Law versus FRAND Terms in IT Markets,
34 World Competition L. & Econ. Rev. 51, 51–​71 (2011).
49 See Doug Lichtman, Understanding the RAND Commitment, 47 Hous. L. Rev. 1023, 1031 (2010)

(‘It is something of an outrage that the language of the RAND commitment offers so little guidance as to
its proper interpretation.’).
50 Based on the terminology referred to in the ETSI Declarations, supra note 46.
51 The governing law in FRAND disputes should also be identified and selected with more predict-

ability as convincingly suggested by Dicky Tsang King Fung & Jyh-​An Lee, Unfriendly Choice of Law in
FRAND, 59 Va. J. Int’l L. 220 (2019).
52 See ETSI Declarations, supra note 46.
53 Admitting the validity of contractual commitments, see Microsoft Corp. v. Motorola, Inc., 854

F.Supp. 2d 993 (W.D. Wash. 2012), in which the Court agreed that Motorola (owner of SEP) through
its letters to both the IEEE and ITU [as SSOs], had entered into binding contractual commitments to
license its essential patents on RAND terms (with references to prior case law: Research In Motion Ltd.
v. Motorola, Inc., 644 F.Supp. 2d 788, 797 (N.D. Tex. 2008), and Ericsson Inc. v. Samsung Electronics,
Co., Civil Action No. 2:06-​CV-​63, 2007 WL 1202728, at *1 (E.D. Tex. 20 April 2007)) and that Microsoft,
as a member of both the IEEE and the ITU, is a third party beneficiary of Motorola’s commitments to
the IEEE and ITU (with reference to ESS Tech., Inc. v. PC-​Tel, Inc., No. C-​99-​20292 RMW, 1999 WL
33520483, at *4 (N.D.Cal. 4 November 1999)); these findings were reaffirmed in the subsequent deci-
sion Microsoft Corp. v. Motorola, Inc., 864 F.Supp. 2d 1023 (Dist. Court, W.D. Wash. 2012); for an ana-
lysis of this case, see Kassandra Maldonado, Breaching RAND and Reaching for Reasonable: Microsoft
v. Motorola and Standard-​Essential Patent Litigation, 29 Berkeley Tech. L.J. 419, 419–​64 (2014); for a
contractual analysis of FRAND, see Roger G. Brooks & Damien Geradin, Interpreting and Enforcing
the Voluntary FRAND Commitment, Social Science Research Network, https://​papers.ssrn.com/​
sol3/​papers.cfm?abstract_​id=1645878; for the opposite view (considering that (common law) con-
tract theory does not constitute the proper legal basis for analysing FRAND), see Jorge L. Contreras, A
Market Reliance Theory for FRAND Commitments and Other Patent Pledges, Utah L. Rev. 479 (2015).
80 Jacques de Werra

contract—​rights to a third party is widely admitted at the global level. Under

French law, which is of particular relevance for the discussion here (given that it
is the law which governs the European Telecommunications Standards Institute
(ETSI) Declarations), the view is expressed that the commitments made by owners
of SEPs under the ETSI Declarations can qualify as ‘stipulation pour autrui’ within
the meaning of art. 1205 of the New French Civil Code,54 .55 (that is as a contract
with third party beneficiaries). Mr Justice Birss in the English case Unwired Planet
International Ltd. v. Huawei Technologies Co. Ltd. & Anor (‘Unwired Planet’) has

Downloaded from https://academic.oup.com/book/41122/chapter/350438870 by guest on 03 September 2023

also accepted that the doctrine of stipulation pour autrui could be applied to ETSI
even though he admitted that the enforceability of the FRAND undertaking in
French law is ‘not a clear cut question’.56
Another interesting contract law question in the FRAND debate is to identify
which licensing contractual terms are expected to be covered by the FRAND ob-
ligations and how these obligations must be formulated. While the FRAND de-
bate has (logically) essentially focused on the financial aspects of FRAND licensing
(i.e. the assessment and the calculation of FRAND-​compliant royalties),57 patent
licensing agreements must cover a range of other contractual terms and conditions
for which the question of their compliance with FRAND also arises.58 These other
components of a FRAND license must indeed also be FRAND-​compliant and may
also raise quite complex legal issues that courts have to address (potentially by

54 On 1 October 2016, Order No. 2016-​131 of 10 February 2016, modifying the French Civil Code

provisions on contract law and the general regime and proof of obligations, entered into force, see The
Law of Contract, The General Regime of Obligations and Proof of Obligations [Civil Code] Order
n°2016-​131 (Fr.).
55 See Christophe Caron, L’efficacité des licences FRAND: entre droit des brevets, droit civil et normal-

isation, La Semaine Juridique, édition générale, 1006, 1008 (2013).

56 Unwired Planet International Ltd v. Huawei Technologies Co. Ltd & Anor (‘Unwired Planet’)

[2017] EWHC (Pat) 711, para. 146: ‘Standing back I recognise that the enforceability of the FRAND
undertaking in French law is not a clear-​cut question. Prof Libchaber stated that there remains wide-
spread uncertainty about the issue of whether the doctrine of “stipulation pour autrui” can be applied to
ETSI. In my judgment it can be applied in that way and should be. The reason it should be applied is be-
cause the FRAND undertaking is an important aspect of technology standardisation. Holders of essen-
tial IPR are not compelled to give a FRAND undertaking but it serves the public interest that they make
it clear whether or not they are doing so, and it serves the public interest that if they do, the undertaking
is public, irrevocable and enforceable. To avoid hold up, implementers need to know that they can hold
SEP owners to a FRAND obligation.’; the application of the French law “stipulation pour autrui” was
confirmed by the UK Supreme Court in its judgment of August 26, 2020 rendered in this case, [2020]
UKSC 37.
57 See Gunther Friedl & Christoph Ann, Entgeltberechnung für FRAND-​ Lizenzen an
standardessenziellen Patenten, Gewerblicher Rechtsschutz und Urheberrecht 948–​55 (2014).
58 See Jorge L. Contreras & David L. Newman, Developing a Framework for Arbitrating Standards-​

Essential Patent Disputes, J. Disp. Resol. 23, 39 (2014) (referring to ‘Non-​Royalty FRAND Terms’);
see also James H. Carter, FRAND Royalty Disputes: A New Challenge for International Arbitration?, in
Contemporary Issues in International Arbitration and Mediation: The Fordham Papers 67,
73 (Arthur W. Rovine ed., 2013) (holding that ‘[t]‌he paradigm license term in dispute naturally would
be a royalty rate or rates, on the setting of which large amounts of money could turn; but there might
be dozens of other disputed terms, many with complicated (but not readily apparent) financial implica-
tions. Patent license agreements can be complex documents’).
 Contract Law and Intellectual Property Transactions 81

moving away from the clauses agreed upon by the parties).59 It must be noted from
a contract law standpoint that it is generally not usual that courts shall intervene in
private dealings and shall define the content of contracts instead of the contracting
parties unless exceptional circumstances justify such judicial interference.
These questions confirm (in the context of FRAND licensing) the key import-
ance of contract law doctrines and contract law methodologies in helping to ad-
dress pressing issues arising in the global IP transactional ecosystem.

Downloaded from https://academic.oup.com/book/41122/chapter/350438870 by guest on 03 September 2023

IV. Conclusion

In spite of the widespread reliance on IP transactions in today’s increasingly glo-

balized and technology-​dependent business world, there are still many areas of the
vast universe of interactions between IP law and contract law that are still largely
underexplored as of today. There is consequently a need to conduct and to pursue
academic work in order to further explore the law of IP transactions. This requires
the ability (and mental agility) to combine various methodological approaches in
order to analyse the relevant issues in a useful and impactful manner. In this con-
text, as demonstrated in this paper, several of the thorny issues that arise at the
interface between IP law and contract law call for the application of contract law
principles and doctrines in order to shed (new) contractual light on sometimes
quite classical IP transactional questions. As indicated in the introduction of this
paper, contracts are a key component of the IP ecosystem: contracts are the fun-
damental instrument by which IP rights can be used by third parties and be made
available to society as a whole. From a methodological perspective, it is essential
to use the legal doctrines, theories, and methodologies of contract law in order to
help analyse the intricacies of IP transactions, so that IP transactions can constitute
a trustworthy and predictable vehicle for monetizing, sharing, and maximizing the
benefits resulting from human innovation and creativity at the global level.

59 For a discussion, see Mark Anderson, How to Draft a License Agreement That Is Fair, Reasonable,

and Non-​Discriminatory: A Ten-​Point Plan, 13 J. Intell. Prop. L. & Prac. 377 (2018); see also de Werra/​
Dodd, supra note 39 about the provisions of the license agreement that was validated by the UK courts
in the Huawei case (relating to the non-​revocability of the license and to the choice of court clause)
and Jacques de Werra, Les licences FRAND : chance ou risque pour l’harmonisation globale du droit
des contrats de licence de brevets?, 2 sic ! 77-​83 (2019), available at https://​archive-​ouverte.unige.ch/​
unige:114455.