IP audit clauses no longer enforceable?

Many intellectual property licences include provisions granting the licensor the right to enter into the licensee’s premises to inspect relevant documents to ensure that the licensee is complying with specific provisions in the licence. However following a recent High Court decision, such “audit clauses” may no longer be enforceable.

The High Court recently dismissed an application by a data provider to enforce the audit clause of a database licence agreement for the Defendant to “permit any duly authorised representative of [the Licensor] on reasonable prior notice to enter into any of its premises where any copies of [the Database] are used, for the purpose of ascertaining that the provisions of this Agreement are being complied with.”

The application failed because such clause did not set out any further detail as to how such inspection would take place. For example, it was not clear what the Claimant’s representatives could do once access was granted to the Defendant’s premises and there were no restrictions to ensure that the representatives searched only for material relating to the use of the database and not for commercial sensitive information relating to customers or other privileged materials. The agreement was also silent as to what steps could be taken by the Claimant if they found a breach.

This case is a reminder that parties to licence agreements should ensure that when drafting and negotiating audit clauses, they should ensure that the mechanisms in place to carry out the audit are sufficiently clear and precise.

If you wish to discuss any of the issues raised in this article please contact Nick Phillips, Karen Lee or any member of the Edwin Coe Intellectual Property team.

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