Patent Licensing

An exclusive right granted for an invention, which is either a product or a process, and offers a new way of doing work or provides a new technical solution to an existing problem, is called a patent. Introducing a new product or invention to the market is not an easy job. It is a time-consuming process. Filing a patent to protect your invention and then moving from the planning stage to manufacturing involves a lot of hurdles.

Patent Licensing is an act of or a process of granting, to a third party, permissions to extricate benefits by selling and using the licensed product. The patent owner gives license to a third person to use, sell and extract benefits from his patented invention, for an amount already decided as royalty. A patent owner can give away or transfer his interests in a patent to a third person.

The licensor gives away his rights to the invented and patented intellectual property for a period of time over a mutual agreement. During such a period, the licensee can extract benefits and have rights on the interest on the patent. He may use and make the licensed design and gain profits during the licensed period.

What is a patent licensing agreement? A patent license agreement is a contract between a patent owner (licensor) and a licensee that defines the licensee’s terms to make, sell, and use a patented invention. The agreement also provides how will pay royalties will be paid to the patent owner. A license agreement undergoes two significant steps for its completion: Documentation: Under Section 68 of The Patents Act, 1970, a license in a patent shall be valid when it is in writing, and the agreement between the parties concerned is reduced to the form of a document embodying all the terms and conditions governing their rights and obligations, and such agreement is duly executed.


After the agreement takes place, the party that had acquired the license has to register the title or interest in the concerned patent within six months from the date of the agreement. What are the approaches for Patent Licensing? There are two main approaches to patent licensing —One is the carrot approach, and the other is the stick approach. Carrot Approach It is a “friendlier” approach; the patent owner (and potential licensor) must persuade the potential licensee to license the patent.

In this case, the potential licensee has not infringed the patent at issue, and they can refuse to license the patent. So, it is up to the patent owner to convince the potential licensee that the product, design, or technology covered by their patent will benefit the potential licensee somehow, usually by helping them make money. Stick Approach In this more “serious” approach, it has already been determined that the potential licensee has infringed the patent at issue and is using the technology in the patent in some way.

The “stick” in this approach is litigation, and the basic message is that the potential licensee must license the patent or face a lawsuit. What is the patent licensing royalty rate? When an inventor licenses his patent to any third person, they both enter into the license agreement wherein rights of the patent are given to the licensee. In return, the licensor receives a certain amount of money fixed in the agreement every time the product is sold.

This fixed amount is given to the licensor, or the inventor is royalty. The percentage of the net or gross profit decided to be the royalty is the patent licensing royalty rate. Royalty rates generally vary from 0.1 to 25 percent, depending on the type of industry and the invention. What is patent licensing and commercialization? Commercialization is essential as it enables the inventor to seek its fair share from the society in exchange for disclosing his creation to the public. Commercialization of a granted patent can be achieved in two significant ways.

It can either be assigned or licensed. Assignment of a Patent involves a complete transfer of patent ownership under a contract similar to a “real property” sale. An analogy with the lease of real property can be drawn with licensing of Intellectual Property. By means of a license, ownership rights can be withheld while the transfer of other rights can be precisely controlled.

A greater degree of control is conferred upon the licensor of the inventor under a licensing agreement, and hence it makes more sense as to why a licensor or an inventor must go for it to commercialize the patent. What are the ways one could use to find licensees for their patent? Showcase your invention in the best sense possible Find the best patent licensing companies Have a full-fledged market research Reviewing and advertising Find companies that are infringing on your patents What are the types of patent licensing? There are five types of patent licensing.

1. Exclusive License An exclusive license is one in which all the patent rights are transferred to the licensee, but the title. In such a case, the licensee has all the rights as of the patent owner except for transferring the patent to another person. It is exclusively granted to a particular party and cannot be further transferred. This restriction is because, in such a license, even with the transfer of all other rights, the right over the title still rests with the patent owner. In this type of license, the chances of the patent getting infringed are minimal as the rights are less exploited and the licensee has a monopoly over the market.

2. Non-exclusive License The rights enshrined by this license is not exclusive to a particular licensee. In a non-exclusive right, the licensee has the right to sell and make the patented design, but such right is not exclusive. The patent owner may also grant permission to use and make such patented design to any other person. In this case, all of them have the right to make, use and sell the patented design.

3. Sub-license It is a type of license issued by the licensee to different organizations to make the products. Sub-license can be said to grant certain licensed rights on a product to a third party by the licensee.

4. Cross License When a product requires the support of some other product to make its place in the market and for better utilization, cross-license is preferred. Cross license can be understood as an exchange of licenses between different organizations and individuals. Recently, Ericsson and Oppo entered into a cross-license agreement between them covering various patent portfolios of both the companies, including portfolios of 2G, 3G and 4G.

5. Compulsory License When the government grants permission to any individuals or organizations to use, sell or make a patented design or product, irrespective of the will of the patent owner, for the public good, it is referred to as a compulsory license. The compulsory license is usually seen being granted in the pharmaceutical products and the products which fulfill the criteria as mentioned in Section 84 of the Patents Act, 1970.

Why should one license his patent? To avoid the hassle of running a business. Suppose you are an inventor who enjoys inventing new products, designs, or technology. In that case, you may decide to patent your invention but not want to go through all of the trouble of producing, marketing, or selling your product or technology. You can let others take this on and enjoy the royalties a licensing agreement can provide.

To Reduce investment in commercializing. It is especially true if you lack capital or business experience. You may have the research and development skills, but commercializing takes much capital and many organizational resources. To Enter into markets faster. If your licensee is a well-recognized company, your invention will be able to enter the market faster than if you took on commercialization yourself, owing to their experience, infrastructure, reputation, and possible reach into international markets.

To Retain your ownership of the patent. Licensing only grants the use of a patent. With ownership, you can enforce your patent by suing infringers. Why shouldn’t license a patent? Hold on to your technology. You may not want to license your patent if the invention, design, or technology covered by the patent is an essential part of your business or future business strategy. Lose autonomy of the invention If you rely on the licensee to commercialize your invention, the responsibility of success or failure will be up to the licensee. You could end up failing to make any money if the licensee is unsuccessful in its efforts.

Licensing is not a quick-cash solution . If you think you will get a load of money once a license agreement is completed, think again. Nearly all patent licensing agreements are paid through royalties. The licensee will need at least 6 ~12 months before manufacturing and generating revenue, and this is under the assumption that the licensee is successful. You may receive a signing fee at the start of the agreement, mostly in cash, but sometimes in stock.

If you are looking for a larger lump sum, you can consider selling your patent. Think again if you will get a load of money once a license agreement is completed. What are the common mistakes committed during patent licensing? The licensee tends to use the patented design or product before signing the license agreement resulting in patent infringement. The licensee should ensure that he has signed the license agreement before using or selling the product or design so patented.

In the haste of growing rapidly, some inventors fail to find a suitable licensee for their product and end up granting license to some non-competent party. This results in the failure of the invention, which could have had flourished in the global market had the owner opted for an efficient licensee. Lack of awareness regarding the owner’s liability also leads to loss for the licensee.

The licensor is still the patented product or design owner, even during the license period. Thus, he can be held liable for his invention even during the license period. Conclusion Here we have discussed patent licensing, its various kinds, and the benefits of going ahead with licensing and incurred risks. The chances of licensing your patent depending on your patent itself. Every patent owner’s situation is unique, and the decision of whether to license one’s patent to others must be considered carefully.

Maintaining clear communication channels with the licensee is also essential, as disputes may lead to legal fees and hassles in the future. Hence it is always great to hire an expert in the IP and technology domain who can fetch you the right source, which will help you to avail good returns.

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