Intellectual Property Licensing
Intellectual property (IP) forms a
fundamental element of most businesses. It encompasses creativity, innovation
and in some instances, education. In certain circumstances, intellectual
property rights may be registered, thereby making provision for particular,
exclusive rights over an invention, creative expression or brand. Securing
protection for intellectual property, may provide for a competitive market
place advantage, and facilitate an increase in profit margins and growth.
Multiple forms of rights are available for intellectual property. Available
rights include, but are not limited to trade marks, patents, plant variety
rights and copyright. Forms of intellectual property rights are predominantly
territorial, meaning enforceability is often limited to the country in which
the right is registered, granted or otherwise issued.
Intellectual Property Licensing
All forms of IP including patents, trademarks, copyright, designs and plant
varieties can be licensed. IP licensing relates to an IP owner granting
permission to another to use, sell or reproduce their intellectual property,
which in the absence of permission, would likely amount to an infringement of
the owners' IP right.
way of comparison (for ease of understanding), a bus owner might lease a bus
to another person in the same way as a trademark owner might license a
trademark to another person. The lease of the bus grants that other person an
exclusive right to use the bus.
In that same analogy, the lease/license differs from sale in that a sale
results in the transfer of ownership in the bus/IP. Further, in the event a
person used the bus or trade mark without permission, the person would be
breaching on the owners' rights and the owner would be entitled to sue for
Licensing vs Sale
A particular advantage of licensing over sale is that the potential to
maximise profits is maintained better under a license. The financial benefit
of selling IP is certainty of payment; however the transaction is
disadvantaged in that the return on the investment made in developing IP is
limited to the sale price.
Further benefits of licensing include that it allows for the IP to be placed
in the hands of a person, or persons with the necessary capabilities, skills
and/or capacity to bring about the best return. In addition, this method also
provides scope for ongoing improvements to the IP.
Inside this edition
Intellectual Property Licensing
Plant Variety Rights
Best vs Reasonable Endeavours
Going to Court
Building a Boundary Fence
Strange and Wonderful Land Covenants
Royalties and License Fees
Most licence agreements require the licensee to pay fees comprising of an
upfront license fee and ongoing royalties. To refer back to the earlier
analogy, the fee scheme may be compared with a rental plan for a bus lease
with the requirement of regular monetary instalments.
Royalties are generally calculated as a percentage of the net sales or
profits, or on an amount per unit of the licensed property sold. Three main
methodologies exist in relation to royalty valuation, including the cost
approach, comparable market approach and the income approach.
However, as a rule of thumb, the IP owner will seek to be paid 25% of the net
value obtained by the licensee. For example, if a licensee was selling jeans
at a profit of $40 then the royalties might be structured in such a way that
the owner of the trademark under which the jeans were sold (e.g. Levi) would
make $10 per pair of jeans.
Grants of Plant
Variety Rights (PVR) are available for any plant variety with the exceptions
of algae and bacteria. Currently, New Zealand has a noteworthy plant breeding
industry. New Zealand growers and breeders take the lion’s share of some of
the plant variety registered crops that include kiwifruit, clover and apples.
There is a potential for New Zealand to generate significant income not only
from the sale of produce but also from obtaining and licensing new varieties
from other countries.
In application 'variety' means a cultivated plant variety, and encompasses any
clone, hybrid, stock or line of plant. Within this context, the PVR scheme
promotes investment into plant breeding through allocating and providing for
commercial rights, for example, an exclusive right may be granted for the
commercial production of vegetative propagated fruit, ornamental and vegetable
varieties. In addition, the scheme also provides access to varieties bred
offshore. Consequently, an increased number and range of varieties are
accessible to New Zealand farmers, gardeners and horticulture producers.
Plant variety rights may be granted where the variety is new, distinct,
homogenous and stable. A plant variety is considered new if it has not been
sold in New Zealand within certain time frames (that vary depending on the
plant in question).
To deal with the three components of a successful application for a PVR, a
variety will be considered:
* Distinct if it can be distinguished by one or more characteristics from
other known varieties;
* Homogenous if it relates to the particular features of the varieties, sexual
reproduction or vegetative propagation; and
* Stable if it is established in its essential characteristics that it remains
true to its description in repeated propagation or reproduction.
In most instances, a successful application will see a plant variety right
granted for a term of twenty to twenty three years (depending on the type of
plant). The term comes into force from the date of grant. Thereafter, a
grantee shall have the exclusive right to produce, sell, reproduce, and
propagate for commercial production and to authorise any other person to carry
out these steps on the behalf of grantees. The PVR is capable of being
assigned, licensed (as with any intellectual property right), mortgaged or
otherwise disposed of.
To assert and/or enforce rights acquired as a grantee, reasonable steps by
means of suitable labelling or other identification must be affixed to the
plant variety to inform, or to give notice to the purchaser concerned of those
Have you ever seen a contract or
agreement including terms such as "best endeavours", "reasonable endeavours",
or "all reasonable endeavours"? What do these terms mean? What is a party
expected to do under these terms?
These common terms are generally misunderstood. However, as a general rule,
these terms are used to compel a person to take action to fulfil an obligation
or condition that might be, to some extent, beyond that person’s immediate
However, as with any contractual obligation, the devil is in the detail and
courts are often called upon to determine what the detail actually requires of
the person under the obligation.
A best endeavours obligation is more onerous on a party than an obligation of
"reasonable endeavours". It obliges a party to take all available courses of
action to fulfil the obligation that a prudent, determined and reasonable
person might have taken.
The steps that must be taken will likely include spending money to fulfil the
obligation. However, under current New Zealand common-law, that person would
not be expected to spend more than a reasonable amount of money or put itself
in financial jeopardy.
An obligation to use "reasonable endeavours" is less onerous on a party than a
“best endeavours “obligation. The "reasonable endeavours" obligation is
typically defined by reference to an objective standard of what an ordinary
competent and reasonable person might do in the same circumstances. Under an
obligation of "reasonable endeavours" a person is able to balance their
contractual obligations against their commercial operations, in deciding which
course of action to pursue. Accordingly, a party is not required to take any
course of action that might prejudice the interests of that party.
However, if the clause that requires reasonable endeavours sets out specific
steps, then the person having that obligation must take those steps regardless
The courts have grappled with the interpretation of an obligation of "all
reasonable endeavours", and considered whether it is a middle ground between
"reasonable endeavours" and "best endeavours", or as recent Court
interpretation suggests, whether there is no real difference between "all
reasonable endeavours" and "best endeavours".
With that in mind, if a person is under an "all reasonable endeavours"
obligation it is expected that the person will not be obliged to take a course
of action in order to fulfil that condition, where fulfilling that condition
is beyond that party’s control, and where that action may result in the
sacrifice of its own financial interests.
However, if a party is under an "all reasonable endeavours" obligation to do
something that is within its control, then that party is obliged to fulfil
that condition and cannot choose what to do in light of its commercial
interests. In the event that the term is extended to read "all reasonable but
commercially prudent endeavours", then the party concerned may consider its
commercial interests in deciding how to fulfil the condition.
Clearing up confusion
Where these matters are left to the Court for interpretation, the situation
will always be fact specific. However, the use of these terms and what they
oblige a party to do or not do is always an issue. Caution should always be
observed when using these terms, as the likely hood of requiring Court
interpretation is ever-present.
To ensure that the interpretation of your contract or agreement does not end
up in Court, it is advisable to stipulate specific steps a party must take in
order to fulfil a condition. This can be bolstered by setting a timeframe in
which the condition should be satisfied or endured. Outlining possible
penalties, remedies or responses if the condition is not fulfilled could add
some clarity around what is expected by each party.
Please note that there are a number of cases before the Courts reconsidering
the position of "best endeavours", "reasonable endeavours", and "all
reasonable endeavours", as such the current interpretation of these terms may
be subject to change.
What is Sharemilking?
For a number of years dairy industry has been an integral part of New
Zealand's economy and a sharemilking arrangement provides a stepping stone for
farmers looking to become farm owners themselves.
Two parties exist under a sharemilking agreement, the farm owner and the
sharemilker. Essentially, the parties enter into a sharemilking agreement on
the basis that the sharemilker is responsible for operating the farm on behalf
of the owner, but does not own the land and in return is paid a share of the
income from selling milk and anything else produced off the land (e.g.
silage). As a result, the legal relationship between a sharemilker and the
farm owner is that of principal and independent contractor, not employer and
The key requirement for a sharemilking arrangement is that the payments are
distributed between the parties in accordance with an agreed percentage share
of the farm’s income.
Types of Sharemilking Agreements
Sharemilking agreements may be classified as either a Variable or Lower Order
Sharemilker Agreement, or Herd Owning Sharemilker Agreement (also known as a
50/50 Sharemilker Agreement).
50/50 or Herd Owning Sharemilker Agreement
The farm owner under this type of agreement provides the land, buildings and
milking plant, water supply and pump and ensures that the property complies
with the requirements of milk buyer (e.g. dairy company). The owner also pays
for fertiliser and materials and repairs to buildings, fences, gates and weed
control in addition to paying the rates, insurance and any capital costs.
The sharemilker provides the herd, tractors, bikes and implements and meets
all of the farm operating costs, and supplies. The sharemilker also provides
labour necessary for the operation and maintenance of the farm. Furthermore,
the sharemilker also carries out all of the farm work or employs labour at
their cost to do so.
Variable Order Sharemilker Agreement
Variable or lower order sharemilker agreements refer to any sharemilking
arrangement where the parties negotiate the share split from the outset. If
the sharemilker provides a herd with less than 300 cows, the minimum share the
sharemilker must receive is 21% or greater excluding expenses.
Under this type of agreement
the farm owner has more responsibility; meeting a majority of the farm costs
and outgoings as well as supplying the land, buildings, milking, plant and
water supply pumps, the tractor and farm implements. In contrast, the
sharemilker does not provide the herd or may only provide some of the herd.
They provide the labour, meet the shed expenses and cover some of the costs
such as electricity and may provide a small amount of equipment such as bikes
Obviously, the farm owner’s share will be significantly higher than the
sharemilker's share; which is proportionate to the costs and resources the
farm owner provides under this type of agreement.
A farm owner considering a sharemilking agreement should be cautious that they
are not providing a lease to the sharemilker; rather a license allowing the
sharemilker to use the land. If the agreement creates a lease between the
parties, the sharemilker may have the right of exclusive possession of the
land, which could result in the owner having restricted access to their farm.
Anyone considering becoming sharemilker should be aware that they will become
an independent contractor rather than an employee and as such cannot rely on
the Employment Relations Act 2000 to settle disputes with the farm owner.
Additionally the sharemilker will have to obtain an IRD number and become GST
registered. There are a number of uncertainties and considerations to make
when entering into a sharemilking agreement. Having a sturdy, easy to follow
and encompassing agreement in place will remove uncertainty around the roles
and responsibilities of the parties, as well as providing you with the
confidence to go about your business.
The prospect of appearing in or even
simply attending Court proceedings will fill most people with a sense of
dread. There are a great number of unknowns and a Courtroom is not known as
being an inviting or friendly environment.
However, a Courtroom is certainly a safe
environment and while the participants in a Court process may appear to be
aloof and unfriendly, in fact these people are well aware of the stress and
anxiety that a person may feel when coming to Court and will happily answer
questions or provide help.
The Courtroom is used for several types
of cases and depending on the nature of the case or what stage it is at in the
process, the Courtroom and the people in it can look quite different. For
instance, if the Court is set up for a criminal matter there will likely be a
jury, a full press box, an accused person near the back of the Court, several
lawyers, the Judge, a registrar and members of the New Zealand Police.
However, a commercial matter in the early stages of the process will be
handled in what is called the commercial list and in that case there is no
jury, any police and several matters will be heard one after another involving
different lawyers that will come and go as their matters are called.
Accordingly, how to prepare to come to
Court will depend on the reason for attendance and the type of case. However,
here is a checklist of key things to do in preparation for attending Court as
a support person or as a client in a civil (non-criminal) matter:
1. If you are the client, travel to court with
your lawyer. It is the best way to appear as if you know what you are doing
and to avoid becoming lost or anxious. Your lawyer will have been to Court
many times before.
2. If you are to appear in Court (as a witness for example), prepare and ask
questions about when you will be asked to appear and who will speak to you and
3. Check whether the matter is to be heard in the District Court, High Court
or Family Court (or indeed the Court of Appeal or Supreme Court) as these
Courts may be in different places.
4. Dress tidily. Judges have been known to refuse entry into their Court
because of what a person is wearing. Unless you are appearing as a party to
the matter, a witness or you are a lawyer, you do not need to wear a suit or
equivalent. However, you are expected to dress professionally.
5. Turn your mobile phone to silent. Mobile phones may not be used in Court
and the Judge will become annoyed if he/she hears a phone ring.
6. Do not take photographs.
7. Be respectful. The Court is the Judge's office and like anyone, the Judge
will demand respect from people when they are in their office. The Courtroom
is a solemn place and loud conversations, rudeness, foul language or poor
behaviour will not be tolerated.
8. Call the day before to ask any questions about the appearance, the time
that the particular matter is to be heard and which Courtroom will be used
(there are often several Courtrooms in one place).
9. Be prepared to wait or stay for longer than you may have planned. The
process of administering justice is not straight forward and hiccups do occur.
So, bring a book.
Building a Boundary Fence
The Fencing Act 1978 prescribes
the steps that a person must take before building a fence on or near the
boundary with a neighbour. It is a three step process:
1. Send a fencing notice
The neighbour wishing to build, replace or repair a boundary fence must notify
the other neighbour(s) about the type of fence and materials to be used, the
cost of the fence and the details of when the work will start and who will do
it. The notice must also confirm that the neighbour(s) may object and make a
proposal of its own or may refuse to accept liability (if good reasons exist
to do so) for the cost of the fence.
The neighbour(s) to whom the fencing notice is given may object to any element
of the proposal and may provide a counter proposal.
3. Build a fence or negotiate
If there is no objection (either because the neighbour does not respond or
accept the proposal) within 21 days of the date of the fencing notice, the
process is complete and the fence may be constructed as per the fencing notice
and the costs split 50/50. However, if there is an objection, the neighbours
must come to an agreement and if they cannot do so, either party may refer the
matter to a mediator, adjudicator, the Disputes Tribunal or the District
Strange and Wonderful
Land covenants are standard in residential developments.
They are essentially the rules that the owners and occupiers of land within
the subdivision/development must abide by and they keep the area and
properties within that residential area up to the standard hoped for by the
developer and the buyers of properties in that area.
Covenants are relatively harmless and usually confirm the ordinary good
neighbour rules that we all try and live by. However, strange and wonderful
rules are adopted from time to time. Here are some of examples:
Rules about permitted breeds of dogs and cats and a cap on
the number of dogs and cats
Other general animal restrictions (e.g. no roosters and no
more than two chickens)
Rules about where to place trampolines and other children’s
toys (e.g. less than 4 metres from a roof)
Rules to stop certain washing lines and sheds being used
including restricting the colour and type
Rules that stop residents hanging their washing within
sight of the road
Restrictions as to the planting of certain trees or hedges
Imposition to maintain gardens and use certain contractors
for servicing maintenance of gardens with neighbours/development
Restrictions on parking including the number of vehicles,
placement and colour / type of vehicle
Rules about where to park boats and caravans (and some
instances of a ban on parking these vehicles).
If you have any questions about the newsletter items,
please contact me, I am here to help.
Scannell & Co - 122
Queen Street East, Hastings
(06) 876 6699 or (021) 439567 Fax: (06) 876 4114 Email:
information in this newsletter is to the best of the authors' knowledge true
and accurate. No
liability is assumed by the authors, or publishers, for any losses suffered
by any person relying directly or indirectly upon this newsletter. It
is recommended that clients should consult S J Scannell & Co before
acting upon this information.
S J Scannell & Co
Would like to wish
you and your family a Merry Christmas and prosperous New Year
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