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My licensee may be in financial difficulty. How can I protect my IP?


I think one of our licensees may have financial problems. Although I am reluctant to take drastic action that may sever our business relationship, how can I ensure that we protect our IP?

The lawyer

If you have a financially distressed licensee, the first step is deciding whether to terminate the licence. A distressed licensee can devalue your IP and limit your ability to grant licences to other, potentially better performing parties. If the licence is exclusive, all avenues to monetise the IP may be blocked. Even if not exclusive, other existing or future licensees may be deterred from paying because they would be disadvantaged in competing with a licensee who is not paying.

Additionally, it may be important to terminate if the licensee's precarious position creates a risk that competitors to whom you would never have licensed could get access to your technology through voluntary M&A activity or bankruptcy. This may be particularly important where trade secrets are involved, although some courts will issue orders protecting trade secrets to prospectively block such harmful releases of trade secrets.

If termination is necessary,...


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