Licensing and Invalidity: It's Valid Until it has been Declared Invalid; and: do not Forget About the Know-How (Decision of the Austrian Supreme Court (OGH))

A licensee has licensed a utility model (UM) and know-how (KH) for an oxygen-enriched beverage. In addition, a gas mixing equipment was supplied by the licensor mainly for counting the drinks for calculating the license fee. Shortly after the equipment was successfully installed at the licensee's facility, problems occurred and the licensee decided to exchange the licensor's equipment with new equipment from a different supplier. After some negotiations, the licensee terminated the license contract. Licensor sued for payment of minimum royalties for two years which were already due. Licensee denied the basis for such payment because he argued that the UM was invalid and that the KH was of no value and was not used.

The OGH upheld the decision of the first and the second instance that royalties must be paid by the licensee. The court found that a licensee enjoys the protection of the license until the formal invalidation of the licensed right. The licensee does not have to fear claims for injunction by the licensor; the licensee can also claim injunctive relief against third parties (at least, if made effective by the licensor). This status of the licensee justifies the interpretation of the license contract that the royalties are owed until formal invalidation of the UM. The invalidation of a UM has therefore effect only for the future for any claims out of a license contract.

Moreover, the OGH held that in a combined UM and KH license, the KH is an independent contract subject which has an economic value, indicating that - regardless whether the KH was used by the licensee - at least part of the minimum royalties are due even if the UM is finally terminated.

Dr. Daniel Alge