Ask a lawyer:
What are the standard clauses for a royalty agreement?
Introduction
A royalty agreement is a legal contract between two parties where one party (the licensor) grants the other party (the licensee) the right to use certain intellectual property (IP) in exchange for payment, typically in the form of royalties. In Kenya, such agreements are governed by various laws, including the Copyright Act, the Industrial Property Act, and the general principles of contract law as outlined in the Law of Contract Act. This document will outline the standard clauses typically found in a royalty agreement, referencing relevant Kenyan laws and regulations.
Table of Contents
Definitions
Grant of License
Royalty Payments
Accounting and Audits
Term and Termination
Confidentiality
Intellectual Property Rights
Warranties and Representations
Indemnification
Dispute Resolution
Governing Law
Miscellaneous Provisions
Conclusion
1. Definitions
Source: Law of Contract Act, Section 3
Intellectual Property (IP): Clearly define what constitutes the IP being licensed, such as patents, trademarks, copyrights, or trade secrets.
Royalties: Define the payments to be made by the licensee to the licensor for the use of the IP.
Net Sales: Define how net sales will be calculated if royalties are based on sales.
2. Grant of License
Source: Copyright Act, Section 22; Industrial Property Act, Section 55
Scope of License: Specify whether the license is exclusive, non-exclusive, or sole.
Territory: Define the geographical area where the licensee can use the IP.
Field of Use: Specify the particular field or industry in which the IP can be used.
3. Royalty Payments
Source: Law of Contract Act, Section 29
Payment Structure: Detail how royalties will be calculated (e.g., percentage of sales, fixed amount per unit).
Payment Schedule: Specify when and how often payments will be made (e.g., monthly, quarterly).
Currency: State the currency in which payments will be made.
Taxes: Clarify who is responsible for any taxes associated with the royalty payments.
4. Accounting and Audits
Source: Law of Contract Act, Section 29
Record-Keeping: Require the licensee to maintain accurate records of sales and royalty calculations.
Audit Rights: Grant the licensor the right to audit the licensee's records to verify royalty payments.
Audit Frequency: Specify how often audits can be conducted (e.g., annually).
5. Term and Termination
Source: Law of Contract Act, Section 36
Term: Define the duration of the agreement.
Termination for Cause: Specify conditions under which either party can terminate the agreement for cause (e.g., breach of contract).
Termination for Convenience: State whether either party can terminate the agreement without cause and the notice period required.
Effect of Termination: Detail the obligations of both parties upon termination, such as final royalty payments and return of IP.
6. Confidentiality
Source: Law of Contract Act, Section 3
Confidential Information: Define what constitutes confidential information.
Obligations: Specify the confidentiality obligations of both parties.
Duration: State how long the confidentiality obligations will last, even after the agreement is terminated.
7. Intellectual Property Rights
Source: Copyright Act, Section 22; Industrial Property Act, Section 55
Ownership: Clarify that the licensor retains ownership of the IP.
Improvements: Specify who owns any improvements or modifications to the IP made by the licensee.
8. Warranties and Representations
Source: Law of Contract Act, Section 3
Licensor Warranties: Include warranties from the licensor that they have the right to grant the license and that the IP does not infringe on third-party rights.
Licensee Warranties: Include warranties from the licensee that they will use the IP in compliance with the agreement and applicable laws.
9. Indemnification
Source: Law of Contract Act, Section 3
Indemnity by Licensor: Require the licensor to indemnify the licensee against claims that the IP infringes on third-party rights.
Indemnity by Licensee: Require the licensee to indemnify the licensor against claims arising from the licensee's use of the IP.
10. Dispute Resolution
Source: Arbitration Act, Section 4
Negotiation: Encourage the parties to resolve disputes through negotiation.
Mediation: Include a clause for mediation as a first step in dispute resolution.
Arbitration: Specify that disputes will be resolved through arbitration, including the rules and location for arbitration.
11. Governing Law
Source: Law of Contract Act, Section 3
Jurisdiction: State that the agreement will be governed by the laws of Kenya.
Venue: Specify the venue for any legal proceedings related to the agreement.
12. Miscellaneous Provisions
Source: Law of Contract Act, Section 3
Entire Agreement: State that the agreement constitutes the entire understanding between the parties.
Amendments: Specify that any amendments to the agreement must be in writing and signed by both parties.
Notices: Detail how notices will be given under the agreement (e.g., in writing, by email).
Force Majeure: Include a clause excusing performance due to events beyond the control of the parties (e.g., natural disasters).
Conclusion
A well-drafted royalty agreement is essential for protecting the interests of both the licensor and the licensee. By including these standard clauses, parties can ensure that their rights and obligations are clearly defined, reducing the risk of disputes. It is advisable to consult legal professionals to tailor the agreement to specific needs and to ensure compliance with Kenyan laws.
By adhering to the principles and requirements outlined in the relevant Kenyan laws, such as the Copyright Act, the Industrial Property Act, and the Law of Contract Act, parties can create a robust and enforceable royalty agreement.
Answered by mwakili.com