A right of first refusal (ROFR) is a provision in a license agreement that grants one party the right to acquire a specific asset before the asset can be sold to a third party. Essentially, this gives the party with the ROFR the chance to meet any offer made by a third party and match their bid to acquire the asset. ROFRs can apply to various types of assets, including intellectual property, real estate, and business assets.
In the context of a license agreement, a right of first refusal allows the licensor to maintain control over the use of their intellectual property. By including this provision, the licensor can ensure that they have the opportunity to continue to license the intellectual property to the licensee, rather than having to find a new licensee if the current one decides to terminate the contract or sell their business. Additionally, an ROFR can help the licensor secure a better price for their intellectual property by creating competition among potential buyers.
However, there are some potential downsides to including an ROFR in a license agreement. For one, the existence of an ROFR may discourage potential third-party buyers from making offers in the first place, as they know that their offers will likely be matched by the licensor. This can limit the number of potential buyers and potentially lower the selling price of the intellectual property. Additionally, an ROFR can be complicated to administer and may require the services of a legal expert to determine whether a third-party offer meets the terms of the ROFR.
To mitigate some of these potential issues, it`s important to carefully draft the terms of an ROFR in a license agreement. Both the licensor and licensee should be clear on exactly what assets the ROFR applies to, as well as the specific circumstances in which the ROFR can be exercised. For example, the ROFR may only apply if the licensee terminates the license agreement before its expiration date, or if the licensee sells the business that is using the intellectual property. By being specific and detailed in the ROFR provision, both parties can avoid confusion and potential disputes down the line.
In conclusion, a right of first refusal can be a valuable provision in a license agreement that allows a licensor to maintain control over their intellectual property and potentially secure a better price for it if it needs to be sold. However, it`s important to carefully consider the potential downsides and draft the terms of the ROFR provision carefully to avoid any confusion or disputes.
