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INTELLECTUAL PROPERTY LICENSE AGREEMENT WITH LOGITECH

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Sectors: Computer Hardware
Governing Law: California , View California State Laws
Effective Date: October 04, 1996
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EXHIBIT 10. 18





* Certain information in this document has been omitted and filed separately

with the Commission. Confidential treatment has been requested with respect

to the omitted portions.





INTELLECTUAL PROPERTY LICENSE AGREEMENT

IMMERSION CORPORATION AND LOGITECH, INC.



This Intellectual Property License Agreement (the "Agreement") between Immersion Corporation, a California corporation, with principal offices in San Jose, California (hereinafter "Immersion") and Logitech Inc., a California corporation, with principal offices in Fremont, California (hereinafter "Logitech"), is entered into as of October 4, 1996 (the "Effective Date").





A. Immersion is the owner of several United States patent applications and one issued United States patent relating to certain force-feedback technology.



B. Concurrently with this Agreement, Immersion and Logitech are entering into a Technology Product Development Agreement dated the same date as this Agreement. Pursuant to the Technology Product Development Agreement, Immersion will develop and deliver to Logitech certain deliverables which are covered by copyrights and trade secret rights owned by Immersion, as well as patents now held or that may issue to Immersion in the future.



C. Logitech intends to develop "Gaming Devices" (as defined below) which may or may not incorporate or utilize the deliverables to be delivered under the Technology Product Development Agreement.



D. The parties desire that Immersion grant a license to Logitech under the foregoing intellectual property rights of Immersion to develop and distribute Gaming Devices, whether or not they incorporate or utilize the deliverables to be delivered under the Technology Product Development Agreement, all on the terms and conditions set forth herein.



NOW, THEREFORE, in consideration of the promises and agreements set forth below and the other consideration cited herein, the parties agree as follows.



1. DEFINITIONS



In this Agreement the following words and expressions shall have the following meanings:



1.1 AFFILIATES. This means any corporation or business entity which is controlled by, controls, or is under common control of a Party. For this purpose, the meaning of the word "control" shall include, without limitation, direct or indirect





ownership of more than fifty percent (50%) of the voting shares of interest of such corporation or business entity.



1.2 DEFECT. This means, with respect to any non-software Deliverable, failure to materially conform to the applicable then-current Specifications for such non-software Deliverable.



1.3 DEFECT CORRECTION. This means either a modification or addition that eliminates or works around a Defect in a non-software Deliverable so as to cause the non-software Deliverable to comply with the applicable then-current Specification.



1.4 DELIVERABLES. This means the various deliverables, which are tangible implementations or items including interim deliverables or final prototype deliverables, identified as such and described in any development schedule to the Development Agreement and delivered to Logitech thereunder.



1.5 DEVELOPMENT AGREEMENT. This means the Technology Product Development Agreement between Immersion and Logitech dated the same date as this Agreement.



1.6 ENHANCEMENT OR ENHANCEMENTS. This means any force-feedback modification or addition made by Immersion, under the terms of Section 6.7 ("Other Development") and Section 7.2 ("Enhancements by Immersion") of the Development Agreement for the Gaming Field of Use, and which is a tangible implementation other than a Defect Correction or Error Correction, that when incorporated into the Gaming Device, materially reduces product costs of a Gaming Device or materially changes the functional capability or form factor (e.g., joystick to steering wheel).



1.7 ERROR. This means, with respect to any software Deliverable, failure of any such software Deliverable to materially conform to the applicable then-current Specification for such software Deliverable.



1.8 ERROR CORRECTION. This means either a modification or addition that eliminates or works around an Error in the software Deliverable so as to cause the software Deliverable to comply with the then-current Specification.



1.9 FINAL PROTOTYPE. This means a Deliverable which is the final functional form of the Gaming Device, if any, including software and hardware, produced by Immersion under a development schedule to the Development Agreement, which prototype serves as a model for the final production version of the Gaming Device, if any, and which conforms to the applicable Specification.



1.10 GAMING DEVICE(s). This means the consumer gaming computer input peripherals marketed for entertainment applications, including but not limited to the Joystick Product, other joysticks, steering wheels, flight yokes and other similar devices.







1.11 GAMING FIELD OF USE. This means the consumer gaming computer peripherals market, which does not include the market for medical, industrial, business, scientific and arcade products and applications.



1.12 IMMERSION PRODUCT MODEL TECHNOLOGY. This means that subset of Immersion Technology delivered as a Deliverable under the terms of a development schedule of the Development Agreement, or as an Enhancement or New Technology, which is actually utilized in or in connection with and/or embedded in the final production version of the Joystick Product, any subsequent Product Model of the Joystick Product or any Product Model of any Gaming Device.



1.13 IMMERSION SOFTWARE. This means the driver software and computer firmware subset of the Immersion Product Model Technology actually utilized in or in connection with and/or embedded in the final production version of the Joystick Product, any subsequent Product Model of the Joystick Product or any Product Model of any Gaming Device that acts as an interface to and controls the Joystick Product, any subsequent Product Model of the Joystick Product or any Gaming Device.



1.14 IMMERSION TECHNOLOGY. This means any and all technology created or acquired by Immersion, or licensed to Immersion by third parties, including but not limited to software created by employees or consultants of Immersion, (i) first developed or reduced to practice before or after the Effective Date solely by Immersion independent of the scope of the work under the Development Agreement or (ii) first developed or reduced to practice after the Effective Date and within the scope of a Deliverable developed solely by Immersion (a) under a development schedule in effect under the terms of the Development Agreement, (b) as an Enhancement or (c) as New Technology.



1.15 INTELLECTUAL PROPERTY RIGHTS. This means the Licensed Patents and utility models, copyrights and mask work rights, including without limitation all applications and registrations with respect thereto, rights in trade secrets, know-how, and all other intellectual property rights, excluding trademarks and tradenames and patents other than the Licensed Patents.



1.16 JOYSTICK PRODUCT. This means the final production version of the joystick described in the Specification in the first Exhibit A ("Specifications") of the Development Agreement which utilizes and/or contains Immersion Product Model Technology, including but not limited to the applicable Immersion Software, documentation, Defect Corrections and Error Corrections thereto.



1.17 LICENSED PATENTS. This means (i) United States patent no. 5,576,727, titled "Electricalmechnical Human-Computer Interface with Force Feedback", (ii) all patents that may issue based upon any of the United States patent applications listed in Schedule A1 and A2 hereto or upon any corresponding foreign patent applications that have been or may be filed, or upon any continuations, continuations-in-part, or divisional





applications related to any of the foregoing that have been or may be filed, and (iii) any divisions, reissues and reexaminations based on any of the foregoing.



1.18 NET RECEIPTS. This means the gross receipts received by Logitech and its Affiliates without taking into account any foreign withholding taxes that may apply to transfers between Logitech and its affiliates upon any sales of Royalty Bearing Products to unaffiliated third parties, less any actual returns and/or credits actually credited to a customer's account in accordance with Logitech's standard accounting practices applied in good faith. Net Receipts shall not include freight, insurance and taxes. No other costs incurred in the manufacture, sale, distribution, or exploitation of Royalty Bearing Products shall be deducted from gross receipts in the calculation of Net Receipts. If Royalty Bearing Products are bundled with other items sold by Logitech or its Affiliates and are not invoiced separately, royalties will be paid based on Logitech's (or if no Logitech averages sales price exists, the applicable Affiliate average sales price) then-current average sales price for each such Royalty Bearing Product when sold as a separate item (averaged for the applicable Quarter in which the Net Receipts are received by Logitech or its Affiliates, as applicable, for the country in which the sale was made) in like quantities in arms length transactions to unrelated third parties other than Logitech or Logitech Affiliates).



1.19 NEW TECHNOLOGY. This means any force-feedback technology modification or addition made by Immersion, for the Gaming Field of Use, other than a Defect Correction or Error-Correction, that when incorporated into the Joystick Product or other Gaming Device, materially changes the utility, efficiency, market value, functional capability or application, and which is developed by Immersion on a non-exclusive basis and made "generally available" for use in Gaming Devices in the Gaming Field of Use and which is delivered by Immersion to Logitech as a tangible implementation pursuant to the terms of Section 7.4 ("New Technology") of the Development Agreement. For purposes of this definition, "generally available" shall mean offered under nonexclusive license to any one unaffiliated third party (other than the original third party for whom the technology, modification or addition was originally developed) for use in Gaming Devices in the Gaming Field of Use.



1.20 OEM OR OEMS. This means any third party (not including Affiliates) that does not manufacture Gaming Devices and that wishes to purchase finished Gaming Devices for sale in the Gaming Field of Use under its own brand name.



1.21 PARTY OR PARTIES. This means Immersion and/or Logitech.



1.22 PRODUCT LAUNCH. This means the date on which first commercial-level shipping of the Joystick Product or any Product Model commences to third party unaffiliated customers of Logitech or a Logitech Affiliate.



1.23 PRODUCT MODEL. This means a single model of the Joystick Product or any other Gaming Device. "Product Model" shall mean each variation of a Joystick







Product or Gaming Device which (i) differs by virtue of addition of or alteration through an Enhancement or (ii) constitutes a change in form factor (e.g. joystick to steering wheel) or (iii) incorporates a material change in force-feedback functionality made by a party other than Immersion. Purely cosmetic alterations (e.g., color or styling) to the physical appearance of the Joystick Product or a Gaming Device, or changes that do not alter the force-feedback functionality but reduce manufacturing costs shall not be deemed a Product Model.



1.24 ROYALTY BEARING PRODUCT. This means a Gaming Device which either (1) incorporates or utilizes Immersion Product Model Technology that is not otherwise made generally available to the public by Immersion without charge or (2) is covered (a) by a Licensed Patent or (b) by a copyright of Immersion embodied in any Immersion Product Model Technology that is not otherwise made generally available to the public by Immersion without charge.



1.25 QUARTER OR QUARTERS. This means Logitech's yearly fiscal quarters. Specifically, Logitech's yearly fiscal quarters begin and end on the following dates: first quarter, April 1 - June 30; second quarter, July 1 - September 30; third quarter, October 1 - December 31; and fourth quarter, January 1 - March



1.26 SPECIFICATION(s). This means the Joystick Product specification attached as the original Exhibit A ("Specification") to the Development Agreement and each Gaming Device specification associated with a development schedule which is attached by amendment to the Development Agreement.



1.27 YEAR. This means any full four-Quarter period.



1.28 Any reference to the words "PURCHASE," "SALE," or "SELL," when used in connection with intellectual property, shall mean license.



2. GRANT OF LICENSES



2.1 GRANT WITH RESPECT TO THE LICENSED PATENTS. Subject to the terms of this Agreement, Immersion grants to Logitech a worldwide, nonexclusive license under the Licensed Patents to develop, make, have made, use, sell, lease, license, demonstrate, market and distribute Gaming Devices in the Gaming Field of Use. Except as provided in Section 2.3 ("Right to Sublicense"), no right to sublicense the Licensed Patents is granted by Immersion to Logitech.



2.2 GRANT WITH RESPECT TO THE IMMERSION PRODUCT MODEL TECHNOLOGY. Subject to the terms of this Agreement, Immersion grants to Logitech a worldwide, nonexclusive license under any Intellectual Property Rights owned or licensable by Immersion that cover the Immersion Product Model Technology, excluding the New Technology except as separately licensed by Immersion to Logitech in accordance with







the terms of Section 7.4 ("New Technology") of the Development Agreement, to use, copy, modify, and create derivative works based upon the Immersion Product Model Technology and in order to develop, make, and have made Gaming Devices in the Gaming Field of Use, and to sell, lease, license, demonstrate, perform, market and distribute such Gaming Devices in the Gaming Field of Use. No access rights or license to the source code for the Immersion Software are granted to Logitech except as provided under the terms of Section 13 ("Source Code Escrow") of the Development Agreement. Logitech and its Affiliates have no right and Logitech agrees not to disassemble or decompile any portion of the software portions of the Immersion Product Model Technology.



2.3 RIGHT TO SUBLICENSE. Subject to the terms of Section 2.6 ("Trademark License from Immersion"), Immersion grants to Logitech the right to sublicense any of the rights set forth in Sections 2.1 and 2.2 above subject to the limitations of this Agreement: (i) to any Affiliate of Logitech and (ii) to any non-Affiliate third party of Logitech solely for the purpose of assisting Logitech in the design or development of Gaming Devices in the Gaming Field of Use. Logitech agrees that any act or omission by a Logitech Affiliate that is inconsistent with Logitech's obligations under the terms of this Agreement shall be deemed to be an act or omission by Logitech and a breach of this Agreement by Logitech.



2.4 DURATION. Subject to the obligation to pay royalties, the licenses set forth above will extend to the full end of the term for which any Licensed Patent is issued or any other Intellectual Property Right of Immersion licensed hereunder is in force, unless sooner terminated as provided in this Agreement.



2.5 LABEL REQUIREMENTS. Subject to the terms of Section 2.6 ("Trademark License for Immersion") and Section 2.7 ("Administration Procedure"), Logitech shall place belly labels on Gaming Devices which are Royalty Bearing Products which shall include the language and related logo: "I-Force(TM) Force Feedback Technology Licensed from Immersion Corporation" (hereinafter the "Legend"). Logitech shall also place or have placed the Legend on retail manuals and boxes as designated in Exhibit B ("Immersion Package Labeling Specification"). If OEM customers object to belly label marking, the Parties will mutually agree upon a reasonable solution in writing in advance. Logitech shall not remove Immersion's copyright notices from any copies of the Immersion Software.



2.6 TRADEMARK LICENSE FROM IMMERSION. Subject to the procedures set forth in subsection 2.7 below and Immersion's prior written approval, Immersion hereby grants to Logitech a nonexclusive, nontransferable, worldwide license, to use in connection with marketing the Joystick Product or any Gaming Device, the trademark(s) used by Immersion ("Marks") to identify the Immersion Product Model Technology and/or Licensed Patents and Logitech agrees to use such Marks on and in connection with Royalty Bearing Products except in the case of OEM products where, if the OEM customer objects, the parties will mutually agree upon a reasonable solution in writing, in







advance. Logitech acknowledges that all use of the Marks will inure to the benefit of Immersion. Logitech shall not register Immersion's Marks in any jurisdiction and will not adopt any trademark for use on the Joystick Product or Gaming Device which is confusingly similar to any trademark of Immersion or which includes a prominent portion of any trademark of Immersion. At Immersion's reasonable request, Logitech shall provide Immersion with samples of Logitech's use of Immersion trademarks. Logitech agrees to abide by Immersion's reasonable written trademark policies as issued and provided to Logitech from time to time. In any case where the Marks are not used in compliance with Immersion's trademark policies and such use has been approved in writing by Immersion, upon receipt of written notice from Immersion, Logitech will promptly correct the non-compliance and submit samples of compliant use to Immersion for approval.



2.7 ADMINISTRATIVE PROCEDURES. The Parties agree that in order to provide Immersion with appropriate information necessary for the orderly administration of the Licensed Patents and Marks, Logitech will provide Immersion with prompt written notice prior to Product Launch of each Product Model and will enclose an information package which contains two prototypes or production units of the Product Model sufficient to enable Immersion to determine which of the Licensed Patents cover the Product Model and to review and approve the use of the Marks. If in any case Immersion believes that the quality of the Product Model does not meet Immersion's commercially reasonable standards, Logitech will not be permitted to ship the Product Model with the Marks until the quality issue is resolved, but Logitech may in is discretion ship such Product Model without the Marks and shall be relieved of its obligation to use the Marks on that Product Model.



2.8 GRANT WITH RESPECT TO KNOW-HOW. Subject to the terms of this Agreement, each party grants to the other a worldwide, nonexclusive license to use any know-how of such party disclosed to the other party pursuant to the Development Agreement.



3. ROYALTIES



3.1 NEW TECHNOLOGY ROYALTIES. As provided in Section 9.6 ("New Technology") of the Development Agreement, New Technology will be provided to Logitech subject to royalties which are mutually agreed upon in writing by Immersion and Logitech.



3.2 PER PRODUCT MODEL ROYALTY. Except as provided by Section 3.1 above, Logitech shall pay Immersion a royalty based on a percentage of the Net Receipts for each Product Model of a Royalty Bearing Product sold by Logitech or any Logitech Affiliates to unrelated third parties (other than Logitech or Logitech Affiliates) in arms length transactions, in accordance with the following. The royalty percentage for each Product Model shall be five percent (5%) for all units of a Royalty Bearing Product sold







during the first twelve month period following the Product Launch of such Product Model. At each annual anniversary of the initial Product Launch for such Product Model thereafter, Logitech will determine the total number of all Product Models of all Royalty Bearing Product units sold during the previous four complete Quarters. If such total number of all Product Models of all Royalty Bearing Product units exceeds the applicable threshold number of total units set forth below, the royalty rate for that Product Model will be reduced by two-thirds of one percent (0.66%) for the next twelve month period, but in no event below a royalty rate of three percent (3%). If the total number does not exceed the applicable threshold, the royalty rate for that Product Model will remain the same for the next twelve month period. For purposes of this Section 3.2, the applicable threshold number of total units to be used for each Product Model for computing whether a royalty rate reduction should take place at the end of the first twelve month period following the Product Launch of each such Product Model is one hundred thousand (100,000) units. The applicable threshold number of total units to be used for each Product Model for computing whether a royalty rate reduction should take place at the end of each subsequent twelve (12) month period on each annual anniversary of the initial Product Launch thereafter is two hundred thousand (200,000) units. Shipments of Royalty Bearing Products between Logitech and the Logitech Affiliates or between Logitech Affiliates will not be considered to be sold or otherwise transferred until sold to an unrelated customer of Logitech or a Logitech Affiliate.



3.3 MOST FAVORABLE ROYALTIES. Immersion agrees that, in the event that the royalty rates contained in any license agreement entered into by Immersion and any third party governing the license of substantially similar Immersion Technology for use in any joystick Gaming Device in the Gaming Field of Use that has substantially similar force feedback functionality to the Joystick Product, are less than the applicable rates for the Joystick Product herein, Immersion hereby agrees that it will advise Logitech of such lesser royalty rates as of the date such lesser royalties became effective for such other third party. Such comparison will be on the basis of cash royalty rates only and will not apply in situations where part of the consideration is a cross-license which is taken into account in setting the cash royalty. Logitech shall have the right to have an independent auditor mutually agreed upon by Logitech and Immersion audit Immersion business records related to the performance of its obligations under this Section 3.3 on an annual basis. Logitech shall pay the costs of such audit, unless such audit reveals that Immersion is not in compliance with this Section 3.3, in which case other than termination Logitech's sole and exclusive remedy will be, at Logitech's option, Immersion shall promptly credit Logitech's account or repay any overpayment, the parties will amend the Agreement to reflect the most favorable Royalty Rate and Immersion shall pay the reasonable costs of such audit. Such audit shall be preceded by at least five (5) business days advance written notice and shall be performed during normal business hours by the auditor. The auditor shall have access to only those books and records of Immersion that are reasonably necessary to determine the compliance by Immersion with this Section 3.3. Any and all non-public information related to Immersion or its business revealed in the course of such audit shall be kept confidential by the auditor and by Logitech, and shall not be disclosed by the auditor to anyone other than employees or professional







advisors of Logitech who have a reasonable need to know in connection with such audit, or used for any purpose, except to the extent reasonably necessary to determine whether Immersion is in compliance with this Section 3.3.



3.4 PAYMENTS AND REPORTS. The royalties to be paid by Logitech to Immersion hereunder shall be due forty-five (45) days after the close of each Quarter. Royalty reports setting forth the royalty calculation by Product Model and identifying whether the sales were made by Logitech or Logitech Affiliates shall be included with such payments. Logitech will pay and account to Immersion for royalties due hereunder with respect to sales or other disposition of Royalty Bearing Products by any Logitech Affiliates, and for that purpose, sales of Royalty Bearing Products by any Logitech Affiliate (other than sales or other disposition by an Affiliate to Logitech or to another Logitech Affiliate) will be deemed to be sales by Logitech.



3.5 AUDIT RIGHTS OF ROYALTY PAYMENTS. Immersion shall have the right to have an independent auditor mutually agreed by Logitech and Immersion audit the method used to calculate the average sales price, as well as the sales data pursuant to Section 1.19 ("Net Receipts") and the royalty payments of Logitech for itself and its Affiliates on an annual basis, but shall pay the costs of such audit, unless such audit reveals any underpayment of royalties in an amount greater than five percent (5%) of actual royalties due for any Year, in which case Logitech shall promptly remit an amount equal to the underpayment and shall pay the reasonable costs of such audit. Such audit shall be preceded by at least five (5) business days advance written notice and shall be performed during normal business hours by the auditor. The auditor shall have access to only those books and records of Logitech which are reasonably necessary to determine the relevant sales royalties due for Royalty Bearing Products for Logitech itself and its Affiliates and the correctness of the royalty payments hereunder. Any and all non-public information related to Logitech, its Affiliates, or their business revealed in the course of such audit shall be kept confidential by the auditor and by Immersion, and shall not be disclosed by the auditor to anyone other than employees or professional advisors of Immersion who have a reasonable need to know in connection with such audit, or used for any purpose, except to the extent reasonably necessary to determine the correctness of royalty payments made hereunder.



4. TERM AND TERMINATION



4.1 TERM. Unless earlier terminated in accordance with the provisions of this Agreement, this Agreement will extend until the last to expire of the Licensed Patents or any other Intellectual Property Right of Immersion licensed hereunder.



4.2 TERMINATION BY LOGITECH.



4.2.1 TERMINATION WITHOUT CAUSE. Logitech may terminate this Agreement without cause upon ninety (90) days written notice, and such written notice







under the terms of this Agreement shall also serve as written notice of the termination of the Development Agreement, if such Agreement is still in effect at such time, and the Development Agreement will then terminate within sixty (60) days of such notice pursuant to the terms of Section 12.1 ("Termination by Logitech Without Cause") and such termination shall be deemed to be a termination without cause by Logitech and will be construed in accordance with the terms of Section 12.3 ("Effect of Termination") therein.



4.2.2 TERMINATION WITH CAUSE. Logitech may terminate this Agreement by written notice to Immersion if Immersion has materially breached the terms of this Agreement and fails to cure the breach after written notice of breach to Immersion and a thirty (30) day time period to cure.



4.3 TERMINATION BY IMMERSION FOR FAILURE TO PAY ROYALTIES. Immersion may terminate this Agreement by written notice to Logitech in the event that Logitech or any Logitech Affiliate breaches the terms of Section 3 ("Royalties") including but not limited to any failure to pay any royalties due and payable by Logitech and/or any of the Logitech Affiliates under this Agreement and Logitech fails to cure such breach after written notice of breach and a thirty (30) day time period to cure. If Immersion issues a written notice of termination to Logitech under the terms of this Section 4.3 ("Terminatio
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