License agreements in China are a common way to commercialize intellectual property (IP) and expand business operations. However, entering into such agreements involves unique legal and practical challenges. This article outlines key legal issues to address when drafting a license agreement in China.

1. Defining the Scope of the License

Clearly define the scope of the license to avoid ambiguity and disputes:

• Exclusive vs. Non-Exclusive: Specify whether the license is exclusive or non-exclusive.
• Geographic Limitations: Clearly outline the territories covered.
• Permitted Uses: Define the specific purposes for which the IP can be used.
• Sublicensing: State whether sublicensing is allowed and, if so, under what conditions.

2. Intellectual Property Protections
To protect your IP from misuse, include clauses that:

• Ownership: Specify that you retain ownership of the licensed IP.
• Improvements: Address whether any improvements or modifications to the IP made by the licensee belong to you.
• Prohibited Uses: Clearly state any activities that are not permitted, such as reverse engineering.
• Registration: Require the licensee to assist with registering the IP in China, if necessary.

3. Payment Terms
Define payment terms to ensure clarity and minimize disputes:

• Royalties: Specify the calculation, timing, and method of payment for royalties.
• Taxes: Address withholding tax obligations and how these will be handled.
• Currency: Determine whether payments will be made in RMB or another currency and account for exchange rate fluctuations.

4. Compliance with Local Laws
China’s regulatory environment is complex and subject to frequent changes:

• IP Regulations: Ensure compliance with Chinese laws governing patents, trademarks, and copyrights.
• Technology Export Controls: Confirm whether the licensed technology is subject to export restrictions under Chinese law.
• Anti-Monopoly Laws: Verify that the agreement does not violate China’s Anti-Monopoly Law, particularly for exclusive arrangements.

5. Confidentiality and Data Protection
Protect proprietary information with robust confidentiality clauses:

• Non-Disclosure: Specify what information is considered confidential and restrict its use to the licensed activities.
• Data Security: Ensure compliance with China’s data protection laws, including the Personal Information Protection Law (PIPL).

6. Dispute Resolution
Choose mechanisms that provide a fair and efficient way to resolve disputes:

• Arbitration: Many foreign companies prefer arbitration under recognized bodies like CIETAC.
• Governing Law: Specify the governing law for the agreement; Chinese courts often require the use of Chinese law.
• Venue: Decide on the location for dispute resolution and whether it will take place in China or a neutral jurisdiction.

7. Termination and Remedies
Address termination and remedies to manage the end of the agreement:

• Termination Events: Define conditions under which either party can terminate the agreement, such as breach of contract or insolvency.
• Post-Termination Rights: Specify what happens to the licensed IP and any products or materials in the licensee’s possession.
• Remedies: Include provisions for damages, injunctions, or other remedies in case of breach.

A well-drafted license agreement in China is essential for safeguarding your IP and ensuring a successful partnership. Collaborating with experienced legal counsel familiar with Chinese laws and practices can help you navigate the complexities and protect your business interests.