Administrative Law

License Agreement Lawyer

License Agreement Lawyer | What to check before you sign, and how to fix it if you already did

Summary

A license agreement grants permission to use another party's patent, trademark, copyright, trade secret, or know-how without transferring ownership. Whether the arrangement is profitable or a slow-motion liability depends almost entirely on how the royalty base, exclusivity scope, and termination rights are drafted. Disputes typically surface only after a party has already invested money based on the license — by then, renegotiating from a weak position is far harder than getting the clause right at signing (민법 제105조, 계약자유의 원칙 적용).

Administrative · IP Contract Review Related law: Civil Act, Trademark Act, Unfair Competition Prevention Act

License Agreement | Royalty structure and audit rights

Royalty clauses look like arithmetic, but the definition of the royalty base is where most later disputes actually originate.

Defining the royalty base

Whether royalties are calculated on net sales, gross sales, or units shipped changes the payout dramatically, and vague terms like 'net sales' invite disputes over which deductions the licensee can subtract. A contract that does not define allowable deductions (returns, discounts, taxes) in a closed list tends to generate disagreement the first time a large deduction is claimed.

Minimum guarantees and audit clauses

Many license agreements combine a running royalty with a minimum annual guarantee, which protects the licensor if the licensee underperforms or under-reports sales. Without an audit right — the licensor's ability to inspect the licensee's books on notice — the minimum guarantee and reporting obligations are difficult to enforce in practice, since the licensor has no way to verify the licensee's self-reported figures.

Late payment and currency risk

For cross-border licenses, a fixed exchange rate or conversion date should be specified, otherwise disputes arise over which rate applies to a payment made weeks after the reporting period ends. A clear default interest rate for late royalty payments, tied to a specific statutory or commercial rate, avoids arguments later over what interest applies (민법 제397조).

License Agreement | Exclusive, sole, or non-exclusive — and territorial scope

The single word choice between 'exclusive' and 'sole' can determine whether the licensor can compete with its own licensee.

Exclusive vs. sole vs. non-exclusive

An exclusive license typically excludes even the licensor itself from exploiting the IP in the licensed territory, while a 'sole' license usually still allows the licensor to compete alongside the licensee. Many disputes trace back to a licensee assuming 'exclusive' when the contract actually granted a non-exclusive right, so this term should be defined explicitly rather than left to industry custom.

Territorial and field-of-use limits

A license can be exclusive within a defined territory or field of use but non-exclusive elsewhere, and ambiguity about online sales, sub-licensing, or adjacent product categories is a common source of later conflict. Sub-license rights, if not addressed, are generally not implied and should be spelled out separately from the primary grant.

Trademark quality control requirements

For trademark licenses specifically, the licensor generally needs some form of quality control over the licensee's use of the mark, both to protect brand value and because inadequate control can weaken the licensor's own trademark rights in a later dispute (상표법 제93조 관련 통상사용권 규정 참조).

License Agreement | Termination, post-termination use, and breach remedies

What happens the day after termination — inventory, confidential information, ongoing royalties — is often left thinner in the contract than the grant clause itself.

Termination triggers and cure periods

Standard triggers include non-payment, insolvency, and change of control, but the cure period granted before termination becomes effective is frequently the actual battleground in a dispute. A party seeking to terminate for breach should generally give written notice and a defined cure period rather than terminating immediately, unless the contract expressly allows termination without notice for specific breaches.

Sell-off periods and residual inventory

Without a sell-off clause, a terminated licensee may have to destroy or return existing licensed inventory immediately, which can be commercially harsh if that inventory was lawfully produced before termination. A defined sell-off window (commonly a fixed number of months) reduces post-termination disputes over what the former licensee may still sell.

Remedies for unauthorized use after termination

Continued use of licensed IP after termination is treated as unauthorized use and can expose the former licensee to claims for damages or an injunction, separate from any remaining contractual claims (민법 제390조, 부정경쟁방지법 관련 조항 검토 필요). Whether the licensor pursues an injunction, damages, or both depends on how much commercial harm the continued use is causing.

License Agreement | From first draft to signed agreement — or from breach to resolution

Initial consultation and document review
We review the draft agreement, the underlying IP registration status, and the commercial deal points you've already agreed with the other party.

Risk mapping
We identify which clauses create asymmetric risk — royalty definitions, exclusivity scope, termination triggers — and flag which ones are negotiable given the other party's leverage.

Drafting or redlining
We draft the agreement from scratch or redline the counterparty's draft, with clause-by-clause explanations of what each change protects against.

Negotiation support
We prepare fallback positions for contested clauses so you know in advance which terms are worth pushing on and which are standard market practice.

Post-signing or dispute-stage support
If a dispute arises after signing — non-payment, unauthorized sub-licensing, post-termination use — we assess whether the facts support a demand letter, mediation, or litigation, and pursue the option most aligned with actually recovering your loss.

License Agreement | How fees are structured for license agreement matters

Contract review / drafting fee
Typically a flat fee based on the complexity of the agreement and number of revision rounds, rather than the value of the license itself. Multi-jurisdiction or multi-party licenses generally increase the flat fee due to added review time.

Negotiation support
Can be billed as an extension of the drafting flat fee or hourly, depending on how many rounds of back-and-forth are expected with the counterparty's counsel.

Dispute-stage retainer
If the matter moves to a breach dispute, a retainer is set based on whether the initial step is a demand letter, mediation, or a civil suit, since the required work product differs substantially.

Contingency or success fee
For claims seeking monetary recovery (unpaid royalties, damages), a portion of the fee may be structured as a success fee tied to the amount actually recovered, in addition to a reduced base retainer.

Disbursements
Court filing fees, service of process costs, translation fees for cross-border agreements, and expert fees (for royalty audits) are billed separately from the legal fee itself.

※ Costs vary depending on case complexity and specific circumstances; exact fees will be provided during consultation. No specific outcome is guaranteed.

License Agreement | Self-Check Before You Sign or Dispute

1️⃣ Before signing a new license agreement

Is the royalty base (net sales, gross sales, units) explicitly defined with a closed list of deductions?
Does the contract state clearly whether the grant is exclusive, sole, or non-exclusive?
Is there an audit clause allowing you to verify the other party's reported figures?
Does the contract specify a governing law and dispute resolution method (court vs. arbitration)?
Is sub-licensing addressed explicitly, rather than left silent?

2️⃣ If you are the licensor considering termination

Have you documented the specific breach (non-payment date, unauthorized use instance) with evidence?
Does the contract require a cure period before termination takes effect?
Have you sent written notice consistent with the notice clause in the contract?
Do you know whether the licensee has continued using the IP after any notice was sent?

3️⃣ If you are the licensee facing termination

Does the contract include a sell-off period for existing inventory?
Have you confirmed whether the alleged breach falls within a cure period still running?
Are there any confidential information or know-how return obligations that survive termination?
Could the termination itself be challenged as inconsistent with the contract's own termination clause?

4️⃣ If a royalty payment dispute has already started

Do you have the sales records or reports that the royalty calculation should be based on?
Has a formal audit request been made and, if so, has the other party responded within any contractual deadline?
Is the disputed amount large enough that a demand letter alone is unlikely to resolve it?

Frequently Asked Questions

Q. What's the difference between a license agreement and an assignment of IP rights?

A. A license grants permission to use the IP while ownership stays with the licensor, whereas an assignment transfers ownership itself. If a contract is silent or ambiguous about which one it intends, courts generally interpret narrowly in favor of a license rather than a full transfer, since assignment is the more drastic outcome.

Q. Can I terminate a license agreement immediately if the other party breaches?

A. Generally no, unless the contract expressly allows termination without a cure period for the specific type of breach involved. Most agreements require written notice and a defined cure period, and terminating without following that process can itself expose the terminating party to a breach claim (민법 제544조 관련 이행지체 및 해제 규정).

Q. Is an oral or informal license agreement enforceable in Korea?

A. Contracts generally do not need to be in writing to be valid under Korean law (민법 제105조, 계약자유의 원칙), but proving the specific terms of an oral license — royalty rate, exclusivity, duration — becomes extremely difficult in a dispute. For any license involving meaningful commercial value, a written agreement is strongly advisable regardless of legal enforceability.

Q. What happens to a license agreement if the licensor sells the underlying IP to someone else?

A. This depends on whether the license was recorded or registered where applicable, and whether the agreement includes an assignment or successor clause. Trademark and patent licenses can sometimes be registered against the IP right itself, which strengthens the licensee's position against a new owner, but the specific effect varies by IP type and registration status.

Q. Can I be held liable for royalties I didn't know were owed because of a vague contract term?

A. Yes — ambiguity in a signed contract is generally resolved by interpreting the actual wording, surrounding circumstances, and prior dealings between the parties, not by what one side privately assumed. This is exactly why royalty base definitions and deduction lists should be spelled out rather than left to 'standard practice.'

Q. What is a most-favored-licensee clause and do I need one?

A. A most-favored-licensee clause guarantees that if the licensor later grants a more favorable license to a different party, your terms are automatically adjusted to match. It's most relevant when you're an early or anchor licensee and want protection against being undercut, but it also constrains the licensor's future flexibility, so it's often a heavily negotiated point.

Q. Can a license agreement include a non-compete clause for the licensee?

A. Yes, but overly broad non-compete or exclusivity restrictions can raise issues under fair trade and unfair competition rules, particularly if the licensor holds significant market power in the relevant field. Whether a specific restriction is enforceable depends heavily on its scope, duration, and the market position of the parties involved.

Q. What should I do if I discover my licensee is under-reporting sales?

A. The first step is generally to review the audit clause and formally invoke it rather than making informal accusations, since an unfounded allegation can itself create friction or liability exposure. If the audit confirms under-reporting, the contract's remedies clause (interest, back payment, audit cost-shifting) typically governs the next step before litigation is considered.

Q. Is a perpetual, royalty-free license actually enforceable long-term?

A. It can be, but 'perpetual' licenses are still subject to the contract's own termination clauses (breach, insolvency) unless those are also expressly waived, and courts have at times read implied reasonable limits into indefinite-duration contracts depending on the facts. A perpetual license intended to survive almost any circumstance needs to say so explicitly and address what happens on breach.

Official References

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