How to review a license agreement in Word

A license agreement decides what the licensee may do, where, for how long and at what price. Most of the risk sits in a few places: the grant clause, the defined terms it relies on, the payment terms and what happens at the end. This guide walks through each part in the order most lawyers review it, with the US rules that change the answer.

LexDraft has no dedicated license playbook yet. In Word, run a general review with the governing state selected, run the defined-term and cross-reference checks, and use the checklist below for the license-specific points.

1. Identify the kind of license

• Patent or technology license: licensed patents, know-how, field of use and improvements.
• Software license: on-premises or hosted, users or seats, affiliates, source code and support.
• Copyright or content license: media, formats, territory and the right to modify.
• Trademark license: quality control, approved uses and goodwill.
• Inbound or outbound. The same clause reads differently depending on which side your client is on.

2. The grant

• Exclusive, sole or non-exclusive, and whether the licensor keeps the right to use the IP itself.
• Field of use, territory and term, each tied to a defined term that actually exists in the agreement.
• Rights granted: make, use, sell, reproduce, distribute, modify, sublicense. Anything not listed is usually not granted.
• Reserved rights and any implied licenses the licensor disclaims.

3. Sublicensing, assignment and change of control

Under federal law, a non-exclusive patent license is generally personal and cannot be assigned without the licensor's consent (In re CFLC, 9th Cir. 1996), and courts take the same view of non-exclusive copyright licenses. Say expressly whether the licensee may sublicense or assign, and what happens on a merger or sale of the business.

4. Money

• Upfront fees, running royalties, minimums and milestones.
• The definition of Net Sales or the royalty base, with permitted deductions.
• Reports, audit rights, who pays for the audit and late-payment interest.
• Patent expiry. Royalties for use of a patent after it expires are unenforceable (Brulotte v. Thys, reaffirmed in Kimble v. Marvel, 2015). Step royalties down at expiry, or allocate payments between patents and know-how.

5. Ownership and improvements

• Who owns improvements and derivative works, and whether there is a grant-back.
• Use "hereby assigns" for any present assignment of future rights.
• For copyright, a transfer of ownership, including an exclusive license, needs a signed writing (17 U.S.C. 204(a)). An author can terminate many grants after 35 years under 17 U.S.C. 203, whatever the contract says.
• For patents, assignments must be in writing, and recording with the USPTO within three months protects against later purchasers (35 U.S.C. 261).

6. Trademark quality control

A trademark licensor must control the nature and quality of the licensee's goods or services, or risk a "naked license" and loss of rights. Look for real standards, approval rights, inspection and a right to terminate for quality failures.

7. Warranties, indemnities and enforcement

• Title, non-infringement and validity warranties, and any knowledge qualifiers.
• IP infringement indemnity, its cap and the licensor's options to modify, replace or refund.
• Who may sue infringers, who controls the case and how recoveries are shared.
• Challenges. A licensee may challenge the licensed patent (Lear v. Adkins, 1969) without first breaching the license (MedImmune v. Genentech, 2007). Check any termination or royalty-increase trigger tied to a challenge.

8. Term, termination and bankruptcy

• Termination for breach, cure periods, termination for convenience and any sell-off period.
• Survival of sublicenses and of payment, confidentiality and audit duties.
• Section 365(n) of the Bankruptcy Code lets a licensee keep using licensed intellectual property if a bankrupt licensor rejects the license. The Supreme Court held in Mission Product Holdings v. Tempnology (2019) that rejection does not end a trademark licensee's rights either. For critical software, consider source code escrow.

A workflow in Word with LexDraft

1. Open the license in Word and open LexDraft in the side panel.
2. Run the defined-term and cross-reference checks first. They are rule-based and almost instant, and in a license a missing definition or a schedule that does not exist can change the scope of the grant.
3. Select the governing state and run the review. Findings come back graded Critical, High, Medium or Low, with missing standard terms flagged.
4. Accept the redlines you agree with as native tracked changes and add your own.
5. Read the grant, payment and termination sections together one last time.

What LexDraft does not do

LexDraft does not search patents or trademarks, value IP, check chain of title or give legal advice. AI review can miss issues or be wrong; qualified counsel must review every output.

Plans

Start on the Free plan: 5,000 generated words a month, no time limit and no credit card. Professional is $99 a month or $990 a year for 100,000 words a month. Business is $199 a month or $1,990 a year with unlimited words. LexDraft runs in Word 365 (Windows and Mac), Word 2021 and Word on the web, and it does not use customer documents to train models.

This guide is general information, not legal advice. LexDraft does not give legal advice; qualified counsel must review every draft. Spotted something out of date? Email support@lexdraft.ai and we will fix it.