Know How License

---
name: know-how-license
description: Drafts Know-How License Agreements for licensing trade secrets, confidential processes, and proprietary methodologies where value derives from secrecy rather than patents. Reviews transaction documents to extract deal terms, financial structures, and exclusivity provisions. Use when drafting know-how licenses, trade secret licenses, technology transfer agreements, or confidential information licensing agreements.
tags:
  - agreement
  - drafting
  - transactional
---

# Know-How License Agreement

Drafts a commercially balanced agreement licensing confidential technical knowledge, processes, and trade secrets — information deriving value from secrecy rather than patent disclosure.

## Prerequisites

Collect before drafting:

1. **Transaction documents** — term sheets, LOIs, prior agreements with negotiated terms
2. **Party information** — legal names, entity types, jurisdictions, principal places of business
3. **Technical description** — functional description of know-how sufficient to define scope without disclosing secrets
4. **Commercial terms** — exclusivity, territory, field of use, financial structure, milestones
5. **Regulatory context** — export control applicability, industry-specific regulations

## Quick Start

1. Extract deal terms from uploaded documents (see Document Review)
2. Draft agreement sections in order (see Agreement Sections)
3. Bracket undecided terms: `[AMOUNT]`, `[PERIOD]`, `[JURISDICTION]`
4. Validate against Drafting Checks

## Document Review

Extract from uploaded documents before drafting:

| Extract | Details |
|---------|---------|
| Party identities | Legal names, entity types, jurisdictions |
| Know-how description | Technical scope, functional categories — preserve negotiated language |
| Financial terms | Upfront fees, milestones, royalty rates, minimums |
| Exclusivity & territory | Exclusive/sole/non-exclusive, geographic scope, field of use |
| Special provisions | Regulatory requirements, cross-border issues, university-to-industry terms |
| Existing relationships | Prior agreements to reference or supersede |

Adjust approach for context: university-to-industry, cross-border, regulated technology, startup vs. established entity.

## Agreement Sections

Draft these sections in order.

### 1. Preamble & Recitals

- Full party identification with entity type, jurisdiction, principal place of business
- Recitals: licensor ownership, trade secret status, licensee's desire for rights, mutual intent — no promotional language
- Reference background context (prior collaborations, strategic objectives)

### 2. Definitions

Precision is critical — ambiguity destroys enforceability and trade secret protection.

Key terms: **Know-How/Licensed Technology** (specific enough to enforce, flexible for updates; use confidential technical schedule if needed) · **Licensed Territory** (geographic precision; subcategories if rights vary) · **Field of Use** (applications, industries, product categories with clear boundaries) · **Confidential Information** (broad capture + standard exclusions: public domain, independent development, prior knowledge, third-party receipt) · **Improvements/Derivative Know-How** (modifications only vs. related developments) · **Net Sales** (inclusions/exclusions, bundled product valuation, affiliate transfer pricing) · **Affiliate** · **Milestone Events** (objective triggering criteria)

### 3. Grant of License

- Specify exclusive / sole / non-exclusive — define each in context
- Enumerate rights: use, manufacture, have-made, sell, distribute, create derivatives, sublicense
- Field-of-use restrictions with clear boundaries
- Territorial scope: manufacturing, use, sale, import; cross-border treatment
- Improvements: ownership, grant-back (exclusive/non-exclusive, royalty-bearing/free), joint improvements
- Licensor reservations: research rights, existing obligations, competing technology development
- Sublicensing: scope, approval rights, required terms, termination treatment

### 4. Financial Terms

| Component | Key provisions |
|-----------|---------------|
| Upfront fees | Amount, timing, conditions precedent, creditability against royalties |
| Milestones | Defined events, objective criteria, amounts, payment timing |
| Running royalties | % of Net Sales or per-unit; bundled product allocation; stacking discounts |
| Minimum annual royalties | Amount per year; shortfall consequence (conversion, termination, or pay-up) |
| Payment mechanics | Currency, FX rates, frequency, method, late interest |
| Records & audit | 3–5 year retention; annual audit by independent CPA; cost-shifting if underpayment exceeds threshold |

### 5. Confidentiality & Trade Secret Protection

Failure here destroys trade secret status — this section is outcome-determinative.

- Standard of care: at least same as own most sensitive information, no less than reasonable care
- Physical, technical, and administrative safeguards required
- Permitted disclosures: need-to-know only, written confidentiality agreements from recipients
- Written disclosure log maintained; available to licensor on request
- Compelled disclosure: prompt notice, cooperate on protective orders, minimum disclosure
- Survival: indefinite (until public domain through no breach)
- Return/destruction on termination with officer certification
- **Residual knowledge**: address explicitly — cessation + destruction, or continued use subject to ongoing confidentiality and royalties (most litigated post-termination issue)

### 6. Technology Transfer & Support

- Documentation deliverables: format, scope, timeline
- Training: sessions, duration, location, cost allocation
- Ongoing technical support: scope, response times, limitations
- Manufacturing transfer, process validation, regulatory support
- Quality control: standards, sampling, reporting, facility inspections
- Updates/improvements: obligation to provide, included vs. additional fee

### 7. Diligence & Performance

Required for exclusive licenses — include objective milestones.

- Commercially reasonable efforts obligation
- Specific milestones with deadlines (development, regulatory, first commercial sale, sales targets)
- Consequences for failure: conversion to non-exclusive, termination, compulsory sublicensing
- Periodic progress reports: frequency, content, timing

### 8. Representations & Warranties

**Licensor**: authority to grant license, ownership/control of know-how, trade secret status maintained, no known third-party infringement (knowledge qualifier), disclosure of known limitations.

**Licensee**: authority to enter agreement, lawful use and regulatory compliance, technical and financial capability, export control and anti-corruption compliance.

**Disclaimers (conspicuous text — bold or caps)**: AS-IS for functionality/accuracy/completeness/fitness, no non-infringement warranty (licensee responsible for FTO), disclaim implied warranties of merchantability and fitness for particular purpose.

### 9. Indemnification

- **Licensee indemnifies**: use, modification, manufacture, sale; product liability; combination with other tech; failure to follow instructions
- **Licensor indemnifies**: third-party IP claims re know-how as provided (often limited to rep/warranty breach)
- Procedures: prompt notice, indemnifier controls defense, no settlement admitting liability without consent, late notice relieves only to extent of material prejudice

### 10. Limitation of Liability

- Mutual consequential damages waiver (conspicuous text)
- Aggregate cap (e.g., multiple of fees paid in preceding 12 months)
- Carve-outs: confidentiality breach, unauthorized use beyond scope, indemnification, willful misconduct, gross negligence, fraud

### 11. IP Ownership

- Licensor retains all rights in licensed know-how; licensee acquires only expressly granted rights
- Improvements: licensor-developed → licensor; licensee-developed → licensee (subject to grant-back); joint → per agreement
- Enforcement: primary enforcer, notice obligations, cost/recovery allocation, step-in rights

### 12. Term & Termination

| Trigger | Provisions |
|---------|-----------|
| Term | Perpetual, fixed, or until terminated; renewal mechanics |
| Convenience | 30–180 days notice; consider restricting for exclusive licenses |
| Material breach | Written notice + 30–60 day cure period |
| Incurable breach | Immediate: confidentiality breach, unauthorized use, non-payment |
| Insolvency | Automatic on bankruptcy, receivership, assignment for creditors |
| Diligence failure | Conversion to non-exclusive or termination |
| Change of control | Termination right, especially if acquirer is competitor |

### 13. Post-Termination

- Cessation of use (immediate or wind-down with continued royalties)
- Sublicense treatment: automatic termination, survival if compliant, or conversion to direct license
- Return/destruction of all materials with written certification
- Accrued payments immediately due; audit rights survive
- Survival: confidentiality, payment, indemnification, liability limits, dispute resolution, governing law

### 14. Regulatory & Export Control

- Compliance with EAR, ITAR, and equivalent foreign laws
- Licensee responsible for export licenses/approvals
- No transfer to prohibited destinations/entities/persons
- Industry-specific compliance (FDA, environmental, safety) — allocate regulatory approval responsibility

### 15. General Provisions

Entire agreement, amendment (written only), assignment restrictions (consent required; affiliate/successor exceptions), notices, severability, waiver (written, instance-specific), independent contractor, counterparts/e-signatures (E-SIGN Act), force majeure (excludes payment; termination if prolonged), further assurances.

### 16. Signature Blocks & Schedules

Signature blocks with name, title, date, authority representation. Exhibits: confidential technical description, documentation list, payment schedule, milestone chart, quality specs, form sublicense/NDA.

## Drafting Checks

- **Calibrate to deal size**: complex/high-value → exhaustive schedules; simple methodology transfer → streamlined
- **Protect trade secret status**: every confidentiality provision must satisfy DTSA/UTSA requirements
- **No implied licenses**: expressly reserve all rights not granted
- **Conspicuous disclaimers**: bold or caps for warranty disclaimers and liability limitations
- **Export control**: mandatory for any dual-use technology
- **Royalty stacking**: include anti-stacking or reduction provisions if applicable
- **Exclusive licenses**: always require diligence with objective milestones
- **Jurisdictional flags**: note where provisions need non-US adjustment