Patent Licensing: Everything You Need to Know

by | Jan 25, 2019 | Insights | 0 comments

The agreement between a patent owner and a licensee is known as patent licensing. The owner needs to transfer the intellectual property rights and interest to the patentee rightfully.

What is Patent Licensing?

The patent license is a cancellable agreement between the patent owner and the licensee and the process of licensing incorporates as to how a patent can be licensed. The owner should transfer the interest in a patent to the licensee who in turn can apply the intellectual property rights and get benefitted.

The owner of the patent can license or transfer the interest in a patent to the patentee. During the term of agreement, the licensor or the patent owner gives up his intellectual property rights and the licensee is free to make or manufacture or market the product or design. The licensee is free to avail the profit on the licensed product during the period of agreement.

Patent licenses are of two types such as:

Exclusive Licenses– In this type of licensing, only the named licensee can exploit the intellectual property rights. No other person or company, even the licensor has no right to make use of the intellectual property rights. In some particular terms, the licensor may still own the title.

Non-exclusive Licenses– In this type of licensing, the licensee can use the intellectual property rights apart from the licensor who also can exploit the rights. The licensor is free to allow other licensees to exploit the same licensed product or design.

What are the advantages of Patent Licensing?

The main motto of patent licensing is to gain royalty from sales. Patent licensing also helps in earning profits from the rights of the licensed product or invention.

Risk Limitation

The cost of manufacturing a product is generally high and risky. Licensing a patent helps mitigates these risk hazards by transferring them to the licensee.

Worldwide Distribution

It is not possible for an inventor to manufacture and market a product globally. Patent Licensing broadens the scope of visibility and marketing of an invention or product globally. This is quite helpful for newly launched start-ups and entrepreneurs.

Determined Time Period

The licensor can incorporate the time period in the agreement according to his wish. During this mentioned period, he will not be able to enforce any intellectual property rights on his product. But once this time period is over, he regains the property rights fully.

Erase Patent Infringement

If a third party infringes an inventor’s patent, he can sue him. However, patent infringement is an expensive process and the outcomes are not always according to expectation. Instead, if an inventor goes ahead to license his patent, another entity will also be able to exploit the intellectual property rights and the inventor will also be benefitted by the profit timely.

What are the disadvantages of Patent Licensing?

The disadvantages of patent licensing are:

Finding out Manufacturers

You as an inventor have designed a unique invention and have patented it. Now you want to earn profit by exploiting the property rights. Doing this task single handedly is quite difficult and so is finding out the perfect manufacturer who will be able to execute the task properly. Thus, finding out the correct licensee or manufacturer is challenging.

Low Success Rate

To find out a prospective licensee, negotiate a license agreement is quite taxing. There are cases where patent owners remained unsuccessful as they couldn’t find interested licensee.

What are the common mistakes that one makes during Patent Licensing?

Below listed are some mistakes that are commonly made a patent owner during patent licensing:

  • Some inventions are ground-breaking and are capable of generating significant amount of money. If the patent owner is sure that his/her invention can earn him that much then he needs to choose the licensee carefully.
  • The licensee must be careful enough to only exploit the intellectual property rights after he has signed the patent licensing agreement. If he makes or sells the invention prior to licensing then he might be sued for patent infringement.
  • Charging of royalties by patent owners can be in advance or annual mode. The standard rate of royalty ranges from 2 to 20 percent of the total revenue. So, claim your rightful royalty!
  • The licensee is bound to meet some requirements like as to maintain the standard of performance and other related metrics. This is known as Performance Obligation. If the licensee fails to maintain the trajectory, then the patent owner can end the license term.
  • The licensee should get himself insured during the term of the licensing period as the licensor remains as the patent owner and can be held responsible for the inventions during the term of the agreement.
  • The Clause section should be mentioned clearly stating which rights are being licensed by the patent owner. The owner needs to provide a logical explanation as to which rights he is licensing and the rights which he is not.
  • The help of an experienced patent lawyer must be taken because just like filing of a patent application, licensing a patent is an equally hard task. A good patent lawyer can protect the rights meticulously.

FAQs

Can a Pending Patent Application be licensed?

Generally, yes. But you should always seek expert advice before proceeding.

How to find prospective licensees?

You can find potential licensees through any of the mediums listed below.

  • You can get to meet licensees (company representatives) in tradeshows or
  • The USPTO publishes “The Official Gazette” where it features products through ads. You can buy the ad space, put up an advertisement which in turn may bring prospective clients.
  • There are various patent websites where you can advertise your invention. Before doing this, you should take preventive measures so that you don’t fall in the trap of scammers.
  • Try finding out capital partners who will be able to help you monetarily.
  • Try to make a list of contacts who will be able to help you either by manufacturing your invention or using it.

Can a Patent License be sublicensed?

Yes, the rights can be sublicensed at times. The grant clause provides a detail explanation as to whether this is possible or not.

What Is a Hybrid License?

A hybrid license incorporates a patent license and other rights thereby allowing a licensee to make maximum use of intellectual property rights.

What Is a Development Agreement?

This type of agreement covers any pre-existing intellectual property that a person or company has. Thus, you can develop a new product besides using the pre-existing intellectual property rights.

What are the steps to file a patent license?

An individual need to follow the below mentioned steps to file a patent license:

  • To find out potential manufacturers or licensees.
  • To sign an NDA or confidentiality agreement that prohibits the licensee from disclosing the IP rights.
  • To negotiate with the licensee on terms and agreements.
  • Lastly, file to file the type of license-exclusive or non-exclusive as per requirement.

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