License Agreement Tips: Pay Attention To The Definition Of 'Affiliate'

When licensing a patent, software, copyrightable work or other intellectual property, it's common for the agreement to license the property to a particular entity and its "affiliates." The agreement may define the term "affiliates." But are the parties always sure that the definition includes all parties that they actually intend to include?

Following on the heels of a recent, similar decision from United States District Court for the Central District of California, the Court of Appeals of the State of New York held that a license granted to an entity and its "affiliates" is limited to affiliates that were in existence on the effective date of the license agreement, unless the agreement expressly states otherwise.

Although the licensee typically benefits when the agreement contains a broad definition of affiliates, the new case is unique because it shows that a licensor can also benefit from a broader definition in certain situations.

The New York case, Ellington v. EMI Music, Inc., involved the terms of a royalty provision found in a 1961 copyright renewal agreement between the legendary musician Duke Ellington and a group of music publishers, including the predecessor to EMI Music. The royalty provision established a revenue sharing arrangement under which Ellington (and his heirs) were entitled to 50% of net revenues resulting from sales by EMI and its affiliates.

EMI granted sublicenses to several newly-created...