Understanding Patent License Agreements

Understanding Patent License Agreements

Copperpod IP
5 min readJun 2, 2023

Often once a person has secured intellectual property rights, it can be more beneficial or valuable to let somebody else commercialize the technology in exchange for a fee, which is why intellectual property agreements and intellectual property contracts exist. These documents are complicated agreements that determine how one’s intellectual property may be used and monetized. IP agreements and IP contracts require careful negotiation, and the owners of intellectual property ought to conduct these negotiations with the support of an experienced intellectual property lawyer.

What is a Patent License Agreement (PLA)?

A patent license contract is a legally binding contract, where both the licensee and the licensor have obligations that the patent license deal needs to satisfy.

  • An exclusive patent license agreement gives a single licensee all the rights to produce, sell, and use the invention.
  • A nonexclusive patent license agreement also transfers these rights, but it allows the licensor also to negotiate and sign agreements with others.
  • A sole license is somewhere in between these two in which allows both the licensor and licensee to use the invention, but generally, the licensor agrees not to grant additional licenses.

If one has a provisional patent or a patent pending, rather than one already granted to him — it is possible to begin negotiating with licensees, although such negotiations will likely result in reduced royalties. In any event, with provisional patents, the inventor should consider licensing the invention as a “trade secret” or at least including a provision in the agreement that also covers trade secrets so that the licensee cannot turn around and use the invention if a patent isn’t eventually granted.

Overall, because patent license agreements can be complicated and one wants to make sure all the issues are appropriately covered, he/she may want to consult with an attorney to guide them through this tricky area of intellectual property law.

Drafting Patent License Agreement

While the terms of individual patent license agreements vary, a standard license agreement for a design, utility, or plant patent generally should include at least the following provisions:

  • Royalties: The most important aspect of the patent license agreement is usually how royalties will be calculated and paid. There are many considerations regarding how to structure royalty payments, including whether one should request a minimum or guaranteed payment, and whether royalties will be calculated based on profits or net proceeds.
  • License Term: Some products have a longer shelf life than others, so determining how long the license agreement should last can make a big difference in royalties. One may consider including a clause that allows for the termination of the contract with certain triggering events or having the agreement cover only a certain period of time with the option of renewal.
  • Annual License Fee for Patent Agreement: This provision provides that the licensee must pay the patent owner a certain amount yearly to retain the license. The amount may remain the same, or the agreement may also stipulate, for instance, that the amount increases when certain triggering events happen.
  • Dispute Resolution: When things go south, one’s agreement should provide how disputes will be resolved, whether through arbitration or litigation, as well as which state’s laws will govern.

What are the Rights and Privileges?

  • Identification of the Parties: The identity section of a licensing agreement includes the identifying information of both parties involved in the contract. When the licensee is a company, the registered name of the company is given. The name and address of the household shall be indicated if the licensor /licensee is a person.
  • Recital Clause: The recital clause should, for example, set out clearly the sequence leading to a contract if the licensee demanded the licensee to retain the licensee ‘s patented technologies production rights.
  • Definition Clause: It should be taken into account that if a term or words in the Agreement are specified, the specified definition takes priority over all other common sense. The products/materials approved should be specifically specified, since the whole transaction is focused on the same.
  • License Clause: It sets out the scope and degree and any limits on the privileges bestowed upon the licensee.
  • Payment Clause: The payment clause talks about running royalties, accrual, payment, accounting statements, interest, books and records and audits, confidentially. For the right of perpetual use of that asset, a royalty is a provision paid from one party to another that owns a specific asset.
  • Indemnification Clause: Under this clause the claim for indemnity or reimbursement is provided when a defendant(indemnifier) vows to avoid any harm, losses, losses or negligence incurred by the actions of the indemnifier or any third party from any such kind of legal repercussions.
  • Termination Clause: The termination provision details the conditions in which the parties can terminate their legal relationship and terminate their contractual obligations.
  • Representations and Warranties of Licensor: A statement of truth that causes a party to enter into the contract is a representation. The declaration made before or at the time of the contract being made refers to a historical fact or current condition relevant to the contract that affects the party to the contract. A warranty is an obligation or a condition that a fact is, or will be as claimed or promised in relation to the subject of a contract and that the arrangement prevents the receiver against damages if the fact is or appears untrue (i.e. an implicit compensation).
  • Representations and Warranties of Licensee: A statement of truth that causes a party to enter into the contract is a representation. The declaration made before or at the time of the contract being made refers to a historical fact or current condition relevant to the contract that affects the party to the contract. A warranty is an obligation or a condition that a fact is, or will be as claimed or promised in relation to the subject of a contract and that the arrangement prevents the receiver against damages if the fact is or appears untrue (i.e. an implicit compensation).
  • Relationship of Parties: As a consequence of the arrangement, a Partnership between Parties clause defines the relationship between the parties. Or, most generally, it makes it clear that there is no particular arrangement between the parties (for example, no agreement or employee/employer arrangement.
  • Assignment: The assignment clause defines which statutory duties, privileges and duties can be shifted from one of the parties to another party.
  • Dispute Resolution Clause: This clause gives the process by which the parties agree to remedy conflicts arising out of their arrangement. It can cover both contractual conflicts (e.g. differences of opinion as to the purpose and effect of a given contract clause) and non-contractual conflicts (e.g. where party A alleges that party B has been deficient in its execution of the contract).

References

Copperpod provides portfolio analysis services that help clients to make strategic decisions such as In-licensing/Out-Licensing of patents, new R&D investments, or pruning out less critical patents. Our team provides strength parameters for each patent in a portfolio based on their technical quality, enforceability, offensive/defensive strengths & business value.

Please contact us at info@copperpodip.com to know more about our services.

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Copperpod IP

Copperpod is one of world's leading intellectual property research and technology consulting firms.