Ethics and Law in New Media/More WIPO: Contracts and Licenses

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This topic is the continuation of the traditional/WIPO understanding of intellectual property theme, this time focusing on contracts and licenses (in general, not focusing only on software and other content in new media).


A contract is a legally binding exchange of promises or agreement between parties that is backed up by the law. The main points of contract law are generally the following:

  • pacta sunt servanda (literally approx. "promises must be kept") - the understanding that contracts should be honoured. It is based on another category, good faith; this entitles states to require that obligations be respected and to rely upon the obligations being respected. This good faith basis of treaties implies that a party to the treaty cannot invoke provisions of its domestic law as justification for a failure to perform. The only limit is considered to be jus cogens, i.e., peremptory norms of general international law (e.g. someone hired to kill someone cannot justify his actions with pacta sunt servanda).
  • good faith (Latin: bona fide) - the mental and moral state of honesty, conviction as to the truth or falsehood of a proposition or body of opinion, or as to the rectitude or depravity of a line of conduct, even if the conviction is objectively unfounded.
  • dispositive nature of the contract law - "what is not forbidden, is allowed", the legal system will not intervene unless specifically asked to.
  • lack of undue influence - e.g. one person taking advantage of a position of power over another person whose free will to bargain is violated.
  • reason - "How would a reasonable person act under the circumstances?". Sometimes, particularly in the context of verbal contracts, the existence of a contract is disputed because one party declares that there was no intention to be legally bound. Since it would be impractical for the court to try to determine the truth of this statement, it uses the following test instead: if the outward conduct of the parties would have indicated to a reasonable bystander a serious intention to enter into an agreement, then the contract is deemed legally binding. Another circumstance where the reasonable bystander is used occurs when one party has inadvertently misstated the terms of the contract, and the other party sues to enforce those terms: if it would have been clear to a reasonable bystander that a mistake had been made, then the contract is voidable by the party who made the error; otherwise, the contract is binding.

Types of contracts include

  • transfer contracts (sale, exchange, donation)
  • contracts for use (rental, leasing, licensing, loan)
  • insurance contracts (life insurance, property insurance)
  • service contracts (hiring, representation)

In order to guarantee the performance of the contract, various legal measures can be used:

  • deposit - suppliers or contractors may be required by a warranty clause to make a preliminary deposit.
  • late interest - Any delay in effecting repayment shall give rise to the charging of interest on account of late payment.
  • contractual penalty - in case of breach of the contract, the violator is subject to a financial penalty payment.
  • pledge - an object of certain value (material or monetary) which in case of breach goes into possession of the non-violating side.
  • surety - a contract whereby one party engages to be answerable for debt, default, or miscarriage of another and arises when one is liable to pay debt or discharge obligation, and party is entitled to indemnity from person who should have made the payment in the first instance before surety was so compelled.

In the context of intellectual property and licensing, the issue of offer and acceptance will have a central role (e.g. acceptance of an End User License Agreement before starting to use a proprietary software package like MS Windows). Among the principles are the following:

  1. The acceptance must be communicated. Prior to acceptance, an offer may be withdrawn.
  2. An offer can only be accepted by the offeree, that is, the person to whom the offer is made.
  3. An offeree is not bound if another person accepts the offer on his behalf without his authorisation.
  4. It may be implied from the construction of the contract that the offeror has dispensed with the requirement of communication of acceptance.
  5. If the offer specifies a method of acceptance (such as by post or fax), you must accept it using a method that is no less effective than the method specified.
  6. Silence cannot be construed as acceptance.

Legislation on using someone else's IP[edit]

In Estonia (and mostly elsewhere as well) using someone else's intellectual property is possible when

  1. the author has transferred the IP rights (sold, donated, given up)
  2. the author has issued a permit (license) for its use

In the latter case, the use may be limited to

  • certain ways
  • certain purposes
  • set period
  • set territory
  • certain extent or instruments


A license is traditionally defined as a permit to use someone else's intellectual property (or simply something created by someone else) under certain predefined conditions (usually set by the issuing party).

  • Licenser - issues a license
  • Licensee - receives a license

Main types of licenses are

  • non-exclusive license - limited right to use (sometimes manufacture and sell) the article.
  • exclusive license - exclusive right granted to licensee to use, manufacture, and sell the article. Permission to do thing and contract not to give leave to any one else to do same thing.
  • absolute license - "temporary transfer" of all rights (essentially a patent on loan).
  • cross-license - mutual exchange of product rights.
  • sublicense - the licensee may (with the consent of the licenser) license the rights to a third party.
  • compulsory license - authority granted officially by the competent authority to a third party to acquire rights on the article without the agreement of its owner, but with compensation.

Payment types can be:

  • single payment
  • periodical payments (royalties)
  • single initial payment and royalties
  • single initial payment and royalties with a guaranteed minimum


To Do[edit]

  • Study licensing in another field than media/software (e,g. robotics, pharmaceutical industry etc) and compare it to the software and online content licensing.

Food for Thought[edit]

  • Contracts essentially need at least two sides. Typical software End User License Agreements (EULAs) are presented as contracts between the software vendor and the user ("If you use it, you agree to..."). Could this kind of contract be non-binding in some cases?