Technology Licensing – Representations & Warranties

Virtually every technology licensing deal has some discussion as to whether the representations and warranties made by a licensor should be “qualified” or “unqualified.”  This issue is certainly one that generates strong opinions on both sides.  In particular, many of our licensor clients have a hard time agreeing to represent and warrant to facts or circumstances beyond their control (e.g., “the Licensor owns all the rights, free and clear of any claims or rights of others, including all trade secrets, inventions, patents, developments, software and/or other information and know-how, in the Software.”)  An unqualified representation shifts the risk of unknown conditions squarely on the licensor.  Many licensors believe it is “unfair” to be forced to represent to something beyond their actual knowledge and will say “how can I represent to something I don’t know?” 

While representing to circumstances beyond their knowledge may seem “unfair” at first, it is not unfair when viewed solely as a risk allocation device and actual knowledge of the party is irrelevant.  The question becomes, who should be responsible in the event the represented circumstance actually occurs?  Essentially, the licensee requests an unqualified representation in order to have a source of recovery if the represented circumstance actually occurs.  In this way, an unqualified representation can be viewed more like an indemnity than a representation.

Because a blanket indemnity couched as a representation & warranty is usually not palatable to a licensor, most parties generally settle on unqualified representations and warranties solely with regards to facts and/or circumstances within the licensors actual knowledge (e.g., “Licensor is a corporation licensed to do business in the State of California.”).  For all other representations and warranties some “qualification” based on knowledge is used (e.g., “To the best of Licensor’s knowledge…”).

As always, your relative bargaining power is different in every negotiation so always be sure to seek legal advice to make sure you entirely understand what you are representing and warranting and its implications.