TERMS OF THE CREATOR-ACQUIRER AGREEMENT

IVAN HOFFMAN, B.A., J.D.



        In the business of intellectual property rights, legally appropriate contracts are not add-ons to your business, something you do *if* you have any money left over; legally appropriate contracts are your business.  Without a thorough and valid contract, then what the parties have is nothing but an illusion.  It only appears they are in business but in reality, they are not since given a controversy between the creator and the acquirer, both parties risk losing rights and the money that goes along with those rights.   Thus it is in the best interests of both parties and often it is essential to the party seeking to acquire the creator’s rights, that a valid, written and signed agreement be entered into.

    For the purposes of this article, a “creator” refers to the party doing the actual creation of the work that eventually is intended to be exploited in the corporate training or online education markets.  It can be a teacher, professor, student or any other creator such as an author of a book, article, treatise etc.  An “acquirer” refers to the non-creating party that seeks to acquire some or all of the rights of the creator to that work for the purposes of marketing and exploiting the work.  It can be a university or other institution, a publisher of a book or magazine article or other such party.

    What then are the legal and  business issues the parties must face in the negotiation of the agreement?

Who Owns What?

    Issue number 1 of course is which party initially owns what rights to the work?  This is dependent upon the nature of the legal relationship between the parties.  I have written extensively about works made for hire and independent contractor relationships and for this, you should refer to these articles including that dealing with the online education relationship entitled “Online Education Rights: Relationships Between Faculty And Institution.

        In the instances in which the creator is not an employee of the acquirer, it is also important to make sure that the creator actually owns the rights to the work that the creator is purporting to sell and assign to the acquirer.  For instance, if an author has written a book, the creator may have already assigned to the publisher of the book the rights to the work that may be the necessary rights needed by the acquirer to exploit the work in the training or distance education markets.  These rights might be referred to as “electronic rights” or some other such term.  Read “Electronic Issues In Publishing Contracts.

Who Licenses What?

        But let’s assume that the creator is not an employee of the acquirer and in fact owns the necessary rights to the work to enter into the agreement with the acquirer.  What rights does the acquirer need to have to effectively exploit the work in the training and distance education market?

        Defining the rights simply as “electronic rights” is a total waste of time, as the above article indicates.  More specificity is needed and the definition should deal with issues such as:

        Additionally, the parties must deal with the term of rights being licensed.  What is the term?  Is there an option granted to the acquirer to extend the term and if so, upon what basis and what terms in the option term?  Are there conditions that the acquirer must meet such as a minimum royalty to the creator during the initial and any option periods in order to continue to have rights to the work?

        And as part of the grant to the acquirer, does the creator make representations, warranties and corresponding indemnities?  How are these phrased?  It is in the best interest of the creator to make no such representations, warranties and indemnities or at the next level, to make them as narrowly drawn as possible.  The opposite is true for the acquirer.

        Correspondingly, does the acquirer make the same representations, warranties and indemnities as to conduct on its part?

Who Gets What?

        The parties must be certain to provide that for each grant of rights there is a corresponding payment to the creator based on the revenue so derived.  I am constantly amazed at how there are often grants made but no corresponding payment provisions for the exploitation of those rights.

        Upon what basis is the payment to be made?  Gross revenue?  Net income?  And how are those terms defined?  Do they include advances received by the acquirer (if sublicensing is allowed).  What about advertising revenue if that is how the acquirer receives revenue?  If based on “net,” what expenses are allowed before calculating the share due the creator?  How often is an accounting and payment due?

What Happens If Who And The What Fall Apart?

        In license agreements, it is essential that a clear set of remedies is provided so that in the event of a breach or claimed breach, the rights to the work are not clouded by a long term litigation.  What then are the events that kick off a dispute?  Can it be merely the claim of a breach by one side against the other or does it require a formal judicial determination that such a breach occurred?  This is a major difference in approach and one that should be thoroughly negotiated.

        Is there any cure opportunities?  If so, do they apply to payment obligations as well as other claimed breaches?  It is not mandatory that they apply across the board.

        Where is jurisdiction in the event of a dispute?

Conclusion

        Clearly there are many, many other issues that should be covered by a thorough agreement.  The marketing world is very complex and the agreement must reflect that complexity by being very specific.  In the corporate market, this may be understood more than in the academic market but that is changing.  Indeed, it is the very existence of these new markets that has stoked the fires of academic unrest in the recent years. No longer content to “publish or perish,” both academics and institutions alike are now more interested in “publish and flourish™.”

        In “Private Laws,” I wrote: “The Internet, the vertical and horizontal integration and cross boundary nature of businesses today make this the day of the deal, the time of the private law.”  This means that it is up to both parties to provide for themselves within the 4 corners of a written agreement since the law is now and will remain behind the transaction.

© 2000 Ivan Hoffman

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This article is not intended as a substitute for legal advice.  The specific facts that apply to your matter may make the outcome different than would be anticipated by you.  You should consult with an attorney familiar with the issues and the laws.
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No portion of this article may be copied, retransmitted, reposted, duplicated or otherwise used without the express written approval of the author.

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