Technology license agreements: types and terms

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You signed a license agreement with a technology supplier. A year later they sold the company to your competitor. The license is still in force, and your competitor now knows exactly which technology you use and at what price. This is not a theoretical scenario. It happens when the right clauses are not read before signing.

What do you actually acquire in a license agreement, and what not?

A technology license grants a right to use an intellectual property asset (software, a patent, a design, a trademark) but not ownership of it. The difference is critical: the license holder (the licensee) can use the technology on the agreed terms, but the licensor keeps full ownership and can go on granting it to others, unless express exclusivity was agreed. In Israel, technology licenses are governed by a combination of the Copyright Act, 5768-2007, the Patents Law, 5727-1967, and the Contracts (General Part) Law, 5733-1973.

Exclusive or non-exclusive: what is the difference in practice?

A non-exclusive license means that the licensor can also grant the same technology to your competitors: entirely legitimate, unless otherwise agreed. An exclusive license prohibits the licensor from granting further licenses to others in the defined field; in copyright, an exclusive license also restricts the right holder itself from doing the act (section 37(d)), and it requires a written document (section 37(c)). Exclusivity costs more, but it is worth it if the technology is a real competitive advantage for you. Also check: is the exclusivity by geography, field, product, or all of them?

Must a copyright license agreement be in writing?

Not always. Under section 37(c) of the Copyright Act, a contract to transfer copyright or to grant an exclusive license requires a written document. A license that is not exclusive does not require writing under the Act, but without a document it is hard to prove exactly what was permitted. Under section 37(b), a license may be granted for the whole right or part of it, and limited to a particular place, a particular period or the doing of a particular act in the work, so it is worth having the license agreement define all three expressly.

The four clauses people skip, and pay dearly for

1. Field of use (scope of use): what exactly may be done with the technology? Internal use only? Providing a service to customers? Embedding it in a product that is sold? Any restriction that is not written down does not exist. Any use that was not expressly defined is a gray area that will end in a dispute.

2. Open source: if the technology contains open source components under a GPL or LGPL license, these components may “infect” your code and force you to publish it. Many entrepreneurs sign without checking the supplier’s bill of materials.

3. Termination terms and what happens afterward: what happens to your data and to the versions you developed when the license ends? Is there an escrow clause that ensures access to the source code if the supplier collapses? These are questions people do not ask until they need to.

4. Indemnities (indemnification): if a third party claims that the technology you received under license infringes its patent, who pays? A broad indemnity clause from the licensor is a protection worth demanding. Without such a clause, only the long road of enforcing a breached contract against the supplier remains.

What about open source: the risk nobody talks about

Much software sold under a commercial license contains open source components. Licenses such as the GPL require anyone who distributes software that incorporates such a component to license the whole combined work under the GPL and to provide its source code (sections 5(c) and 6 of the GPLv3 license), a requirement that can destroy an entire business model. Before signing a license agreement with a software supplier, ask for a Software Bill of Materials (SBOM) and check which open source components are included and under which license.

How much do you pay, and how does the payment structure affect the risk?

A one-time fee model is simpler but usually more expensive up front. A royalties model, a percentage of every sale, suits cases where sales volumes are uncertain, but it creates ongoing friction and a need for monitoring. A SaaS model with a monthly payment allows flexibility but creates dependence: what happens if the supplier raises the price by 40%? Is there price protection in the contract?

What happens when the license is breached?

A breach of license terms (use outside the defined field, transfer to a third party without approval, or non-payment of royalties) may lead to termination of the license, a claim for damages, and, where infringing copies are made or distributed for commercial purposes, also criminal liability (section 61). Under section 7 of the Contracts (Remedies for Breach of Contract) Law, 5731-1970, immediate rescission is possible in a fundamental breach, and in a non-fundamental breach an extension for performance must first be given; the contract may set in advance which breaches will be considered fundamental, but a sweeping term that makes every breach fundamental without distinction is valid only if it was reasonable when the contract was made (section 6 of that Law). When the breach is also copyright infringement, the licensor does not have to prove actual damage: section 56 of the Copyright Act allows compensation without proof of damage, up to NIS 100,000 for each infringement; infringements committed in one series of acts are considered one infringement (section 56(c)).

Before signing: 5 questions you must ask

Ask the supplier: who is the real owner of the technology, and were all the components developed by you? Is there an FTO (freedom to operate) check showing that the technology does not infringe existing patents? What happens to the license if the supplier merges or is sold? Is there an escrow clause for access to the source code? Are there export restrictions? Some technologies in Israel require regulatory approval for export.

And how do you check the answer to the first question? A short checklist of the supplier’s rights:

• Code written by the supplier’s employees: a work that an employee created for and in the course of their employment belongs to the employer, unless otherwise agreed (section 34 of the Copyright Act).
• Code written by contractors and freelancers: in a commissioned work, the first owner is the creator, unless otherwise agreed (section 35(a)). Ask to see the documents transferring the rights to the supplier: a contract to transfer copyright requires a written document (section 37(c)).
• Patents: ask for the patent numbers and check them in the Register of Patents, which is open to public inspection (section 168(a) of the Patents Law). An invention that an employee made as a result of their service and during the period of service becomes the employer’s property, if there is no other agreement between them, unless the employer waived it within six months of the employee’s notice (section 132(a)).
• Exclusive license: make sure it is in writing, and that the supplier declares in the contract that it has not granted anyone else a conflicting license in the same field.