Technology Licensing Agreements in Hong Kong: Key Legal Considerations

Introduction

Technology licensing is the mechanism by which intellectual property rights in technology — software, patents, trade secrets, know-how, or proprietary data — are granted to another party for use, typically in exchange for royalties or other consideration. As Hong Kong grows as a technology and innovation hub, technology licensing agreements are increasingly central to commercial transactions across sectors including fintech, health tech, data services, and professional services.

Types of Technology Licence

Exclusive Licence

An exclusive licence grants the licensee the sole right to use the licensed technology, typically within a defined field of use, territory, or time period. Even the licensor may be excluded from using the technology within the scope of the exclusivity. Exclusive licences are valuable and command higher royalties; they may also carry obligations on the licensee to actively exploit the licence (use-it-or-lose-it provisions).

Non-Exclusive Licence

A non-exclusive licence allows the licensor to grant the same rights to multiple licensees simultaneously. This is the most common form for software licensing (e.g., commercial SaaS or enterprise software licences) and for licensing technology that the licensor wishes to monetise broadly.

Sole Licence

A sole licence is exclusive in the sense that the licensor will not grant the same licence to others, but the licensor itself retains the right to use the technology. This is a middle ground between exclusive and non-exclusive licensing.

Defining the Scope of the Licence

Precision in defining the licensed rights is critical. The agreement should clearly specify:

• Subject matter: Exactly what IP is being licensed (specific patents, versions of software, defined know-how)
• Field of use: The industry or application for which the technology may be used
• Territory: The geographic scope of the licence
• Duration: Whether the licence is perpetual or for a defined term
• Sublicensing rights: Whether the licensee may grant further licences to its own customers or partners, and on what conditions

Royalties and Other Consideration

Royalty structures vary widely:

• Running royalties: A percentage of revenue or a fixed amount per unit sold or deployed
• Milestone payments: Payments linked to achieving defined commercial or technical milestones
• Lump-sum payments: A one-off payment for a perpetual licence
• Hybrid structures: An upfront payment plus ongoing royalties

Audit rights — allowing the licensor to verify the licensee's royalty calculations — are standard in royalty-bearing licence agreements. The frequency, notice requirements, and cost allocation for audits should be negotiated.

IP Ownership and Improvements

A key commercial issue in technology licensing is who owns improvements or derivative works made by the licensee. Possible approaches include:

• All improvements revert to the licensor (common in exclusive licence arrangements)
• The licensee owns its improvements but grants a licence-back to the licensor
• Improvements are jointly owned (generally to be avoided due to complications with joint ownership under Hong Kong and common law IP principles)

Warranties and Representations

Licensors typically warrant that they have the right to grant the licence, that the licensed technology does not infringe third-party IP rights, and (for software) that it performs materially in accordance with its documentation. The scope of warranties is heavily negotiated: licensors of mature technologies are generally willing to make stronger warranties; those licensing early-stage or experimental technology often limit warranties significantly.

Liability Limitations

Technology licences almost universally include liability caps (typically limiting liability to the value of fees paid in the preceding 12 months) and mutual exclusions of consequential, indirect, and special damages. The carve-outs from caps — commonly including death and personal injury, fraud, and IP indemnities — require careful negotiation.

Termination and Post-Termination

Clear termination triggers (material breach, insolvency, change of control) and post-termination obligations (cessation of use, return or destruction of materials, transition assistance) are essential. For software licences, data portability and migration support on termination are increasingly important commercial considerations.

How Alan Wong LLP Can Assist

Alan Wong LLP's corporate and commercial team advises technology companies, startups, corporate licensees, and investors on the full range of technology licensing arrangements. We draft and negotiate licensing agreements, advise on IP ownership and assignment structures, and assist with licensing disputes. Our team has experience across software licensing, SaaS agreements, patent licensing, data licensing, and AI model licensing arrangements in the Hong Kong and regional context.