Recent cases both in the law reports and in my practice have emphasized the risks run by sub-licensees when the prime licensee lose the prime license.  Let’s assume University licenses technology to A and A sub-licenses (properly under the prime license) to B.

Then let us say A is a bad licensee and doesn’t pay royalties.  Or A has financial troubles and ends up in a bankruptcy liquidation.  In the first case University cancels the prime license.  In the second case, the chapter 7 bankruptcy trustee most typically has no money to spend messing with preserving contract rights and, failing to adopt the prime license, that prime license terminates as a matter of law.

Unless the University has agreed in advance (at the time of the sub-license) to recognize B as holder of the license in the event that A drops out of the picture, B may well lose its sub-license even though B has paid every royalty dime and complied with every covenant in the sub-license (including those provisions which fully protect the IP of the University).

Recent case law and an analogous case in my practice have emphasized the importance to the sub-licensee of getting this protection up front, lest being held hostage to the first licensor which realizes that its financial ship came in with flags flying.