CSEG MLA: Procedure and Questions

On October 25, 2001 the MLA Committee presented the Master License Agreement to interested members of the CSEG. The legal document was presented and interpreted for attendees of the forum. A plethora of examples of the MLA in action were given, and numerous questions from the audience were also addressed. This short note is meant to follow up that meeting by addressing sign up procedures and commenting on the MLA in general.

With the MLA now ratified, companies, brokers, and consultants are invited to sign on to the MLA. The procedure for doing so is simple, and is described below:

Master Licensing Agreement Signing Procedures

1. Companies and / or individual brokers and consultants must contact the CSEG office by phone, fax or email to begin the process.
2. CSEG office then executes two copies of the MLA and sends them to the interested party for signing, along with an invoice for the appropriate dollar amount.
3. One copy is returned to the CSEG, signed and with payment intact i.e. cheque/credit card.
4. The licensed entity will be added to the “active” list and published by the CSEG i.e. RECORDER on a quarterly basis and the website on a continuous basis.
5. Please note that while no changes to the MLA are permitted, the parties are free to amend any terms between themselves through the use of the “Special Terms” section of the confirmations.

During the forum presentation, the attendees expressed curiosity about a number of important aspects of the MLA. Those questions tended to revolve around three aspects of the MLA:

1. What are the implications of the MLA to members of the CSEG?
2. How easily is the agreement modified to meet particular companies’ business needs?
3. How is the agreement enforced? As a corollary to enforcement, how do I protect my company from the punitive measures contemplated in the agreement?

Implications of the MLA

Many attendees of the forum were concerned with the impact of the MLA on their particular business. A few wondered if they would somehow be forced to use it, making the MLA an encumbrance to the society. These concerns are quite understandable. The MLA will undoubtedly have an impact on business in the Canadian oilpatch. That impact, will, however, be entirely defined by the CSEG membership itself.

The answers to many of the specific questions in regards to the impact of the MLA are fairly straightforward. Firstly, no one has to use the MLA. This agreement was crafted to serve the CSEG. It is at the members’ disposal, its use is their choice. If a company signs the MLA, they do not have to use it. Such companies may use the MLA for some licenses, and use other documents for others. Brokerage companies may feel the most pressure to sign the MLA, as it is almost certain that at some point, one of their clients will demand to its use.

The MLA is out there as a tool that companies may choose to use, but it is in many ways a departure from the normal license agreements that members of the CSEG have used in the past. It is quite likely that no other license agreement exists in our oil industry that was specifically crafted with a mandate for balance between the rights of Licensee and Licensor. Careful analysis of the respondents to our draft presentation of January 17, 2001 provided the MLA committee with the information that it needed to ensure that this respect for fairness would be the case. Agreements made by individual companies are understandably designed to best serve those individual companies, and unlike the MLA are not necessarily created to serve the rest of the CSEG. The MLA is also written more clearly than most other agreements, and conforms well to the pressing need for business to carry on in a reasonable manner.

The complete treatment of licensing that may be found in the MLA has brought many tiny but important issues relevant to the licensing of seismic data into light that are normally not considered. Issues such as the location and preservation of the Brokers’ records are rarely discussed in the normal course of business. The MLA specifically addresses such issues. A certain feeling that the MLA has created a number of problems may be engendered by the simple fact that protocols for handling such issues are for the first time raised within the document. Interestingly, these issues existed before the MLA was created, and they will continue to exist whether the MLA is widely used or not. Raising the level of awareness to the full spectrum of licensing issues is one of the many important reasons that the MLA project was initiated.

Ultimately, the MLA will have whatever impact the individual members of the CSEG want it to have. It is not an unfair or onerous business practice to have the MLA in existence. Many companies have agreements that they want other people to use. It is always the choice of each party in a potential deal to decide on which legal document to use. It is possible that some large companies will demand that it be used. In such cases, those involved with them will either have to use the agreement or not close the hypothetical deal. Other companies will use the MLA in the absence of having any other complete agreement to use. Some companies will be concerned with some of the particular terms of the MLA, and will create a standard Confirmation that goes with all their licenses signed under it. Some people will not use the MLA at all; which is fine. The use of the MLA rests in the hands of the CSEG membership. They will define its impact.

Modification of the Agreement

The MLA is a fully defined legal document. With a minimally filled in Confirmation agreed to by both a Licensee and Licensor, it will create a binding agreement. It was necessary to create a complete, detailed document so that it would stand on its own without further work from its users. When becoming a signatory to the MLA, CSEG members are not to write changes within the document that they are executing. Such changes will not be valid. All modifications to License agreements covered by the MLA are to be made within the Confirmations.

Within the MLA document itself, there are numerous terms and defined rates, such as the Genetic Transfer Option Rate. While this rate is set at 35% within the MLA document, it can be changed in the Confirmation. Terms set in the Confirmation will supercede those in the document.

The MLA was built upon a broad platform of what was perceived as fair and reasonable. This was never meant to presuppose that changes could not or should not be contemplated within the Confirmations. The MLA committee expects that certain companies using the MLA will in fact come up with their own standard Confirmation that meets certain needs of their particular corporation. All signatories to the MLA are strongly urged to consider the MLA carefully and identify items that need to be addressed in the Confirmation of any deal that they contemplate.

Enforcement of the MLA

It was necessary to create the ability to investigate possible breach of the document within the MLA itself. A method for determining damages was also defined. These concerns were carefully addressed within the agreement so that those entering into it would have the ability to protect themselves from possible unscrupulous behavior. The terms are created such that legal entanglements are minimized.

One concern that has been raised is that part of the procedure when a company is found guilty of a breach of terms involves the return or destruction of Data, as well as the destruction of Data Derived Products. Note that in no case does the document require that a party has to give the Data Derived Product to a Licensor. There is in fact little chance that any company using the MLA in good faith would ever have to destroy its Data Derived Product.

The first item to be considered is why would a company be found guilty of Breach? Primarily the ways that Breach can occur fall into two categories: unintentional, and deliberate. These terms are being used arbitrarily and are not part of the jargon of the document. Unintentional type Breaches are the kind of Breach that occurs when, for instance, a Licensee is accidentally late in paying. This kind of Breach is not likely to result in formal audit proceedings. In such cases, the Licensee will be informed through the Broker that they are in Breach. The Licensee should then act quickly to remedy the Breach by paying the full amount due plus interest. Audit will likely only go forward if the Licensee persists in not paying. Only in the unlikely case that the Licensee purposely and premeditatively refuses to pay, would a party request that an Audit procedure go forward and associated damages get allocated. The parties are also reminded that (see section 14.2) a Licensor can only terminate a License after it has given the Licensee written notice of the breach and afforded the Licensee 30 days to cure the default. In addition, either party is entitled to refer any dispute to arbitration. These two mechanisms should help to reduce any capricious action on the part of Licensors while providing an expeditious alternative to civil litigation where there is a genuine dispute between the parties. Deliberate Breach is the kind where some party is clearly breaking the terms of the agreement with intent to harm the other party. An example of this might be if a Licensee is selling or giving away copies of the Licensed data without the express permission of the Licensor. In such cases, the destruction of Data Derived Products would be fully justified, but the recourse to an arbitrated settlement still exists.