A patent holder may legally allow another party to make, use, sell or import his invention for a specific period of time in a specific geographical region and in return for a license fees. This process is called patent licensing or invention licensing. The patent owner is known as the licensor, and the other party is the licensee. The licensee assumes all of the business risks, from manufacturing to marketing and also handling infringement cases.
A license is a written contract and may include whatever provisions the parties agree upon, including the payment of fees whether one time or royalties. It is a way for commercialization of a patent. Licenses are revocable since it is a contract with performance obligations, the failure to comply with them may lead to the termination of the license, and the patent exclusive rights coming back to the licensor. Several companies such as IBM and Microsoft, and Universities around the world generate large amounts of revenue via patent licensing.
- Broad Classification of License Agreement
- In License (obtaining a license for a patent)
- Out License (granting a license for a patent)
Before going for licensing, a company should do strategic planning by identifying the potential opportunities and then contacting with potential partners, negotiation and management of deals post-completion.
- In License Agreement
It is an agreement by which a party acquires the rights to use a patent. In-licensing allows a company to obtain IP rights, without the risks and costs involved in the otherwise tedious and long R&D.
Benefits of In- Licensing:
- Widening of a company’s IP Portfolio
- Speeds up research
- Accessibility to new products and processes
- Enable a company to obtain rights in platform technologies to assist in internal R&D activities
- To avoid infringement action
- Financially rewarding, as the cost of procuring a license may be very less as compared to the cost incurred on in-house
Things to take care of before in licensing a patent:
- Scope of claim should be broad enough to encompass any obvious design modifications to the licensed-in technology. For a narrow claim set, a competitor may be able to potentially “design around” the patent claims and commercialize a competing product, thereby undermining the value of such a patent.
- Patent portfolio should not be involved in any Infringement legalities
- Check whether the technology is of interest, be it a product or a method, and is actually covered by the claims of a patent portfolio. A patent does not give the owner the right to practice the invention; rather, it provides the owner with the right to exclude others from making, using, selling, offering for sale, or importing the patented invention for the term of the patent. Therefore it is crucial to check whether the issued patent claims actually cover the technology.
- Out Licensing Agreement
It is an agreement by which a patent holder grants the right to use a patent to a third party. Inventors license-out their patented invention to a company that has the capability and the desire to develop the technology for commercialization.
There are numerous reasons to out-license a product or technology:
- Earns ROI for product development
- Revenue generation from obtained patents or for acquiring early returns from a technology not meeting criteria for investment/development
- Freedom to operate in new industries and job opportunities
- Royalty income
- Entry in an export market niche through specific geographic regional licensing
- Types of Patent Licenses
- Exclusive License
- Non Exclusive license
- Sole License
- Cross License
Exclusive license: In an exclusive license, the licensor keeps the title to the patent but retains no other rights for itself. The licensee acquires the right to sub-license the patent and sue for patent infringement. Exclusive licenses may be limited to a geographical region, to a particular field of use, or to a specified period of time. A patent holder may, therefore, retain the right to exploit the invention in other territories or fields of use, or to license patent rights to a different entity, perhaps also on an exclusive basis. In addition, an exclusive license does not alone grant a right to sub-license. This right must be separately granted.
Non-exclusive license: A non-exclusive license allows the licensee to license some or all of the rights to a number of third parties, and also to retain the right to use the patented invention himself. Non-exclusive licenses may also be restricted to a particular territory, field of use, or period of time.
Sole License: A sole license entitles the licensor as well the licensee to use the licensed patent or product with the condition that the patent owner may not license it further to any other entity. Sole licenses are less risky than exclusive licenses for the licensor as they are not totally dependent on the licensee; however, the royalties with a sole license are usually slightly lower.
Cross Licensing: Cross licenses are negotiated when two companies have patents that read on to others product or processes. Instead of taking a litigation, the two companies can enter into a cross license. When large corporation’s extensive intellectual property portfolios are involved, cross-licensing helps, as rights to intellectual property may be exchanged while no royalty payments are involved or a balancing payment is worked out. It is highly precompetitive as each company is free to compete, both in designing its product without the fear of infringement and in pricing its product without paying per unit royalty to the other entity. It is an agreement between two companies that grants each the rights to practice the others patent. It may be restricted to a field of use or geographical restrictions.