A Licensing Deal Is Not Finished When the Term Sheet Is Signed

A term sheet can confirm that the parties have a commercial path forward. It usually does not answer every question needed to operate, protect, and exit the deal. The period after signing the term sheet is where many important decisions become contract language.

Move from business terms to operative definitions. Identify the licensed rights, territory, field of use, products, exclusivity, sublicensing, improvements, and ownership. If the deal concerns a patent portfolio, confirm which issued patents, applications, continuations, and foreign rights are included.

Then address performance. A license may depend on milestones, diligence obligations, minimums, launch dates, sales efforts, reporting, audit rights, and reserved rights. If the licensee misses a milestone, the agreement should say whether the consequence is a cure period, conversion from exclusive to nonexclusive, termination, or another remedy.

The parties should also settle control questions: who prosecutes and maintains patents; who investigates infringement; who may sue; who controls settlement; who owns improvements; and how confidential technical and commercial information may be used. These provisions often matter more than the headline royalty rate.

Finally, draft the end of the relationship. Address breach, insolvency, patent challenge, change of control, sell-off inventory, customer support, continuing confidentiality, accrued royalties, and the effect of termination on sublicenses.

The term sheet should identify which provisions are binding and which are nonbinding. That distinction should be intentional and consistent with the parties’ conduct. The term sheet should separately state whether confidentiality, exclusivity during negotiations, expenses, and governing-law provisions are intended to bind.

The goal is not to make the agreement longer than necessary. It is to make the business deal specific enough that the parties can tell what they promised, what remains discretionary, and what happens when the plan changes.

General information only; not legal advice. The term sheet, final agreement, patent record, and governing law control.

Primary sources to verify: USPTO Patent Policy (https://www.uspto.gov/ip-policy/patent-policy); the signed term sheet; patent assignment and prosecution records; current contract law.