How Do Patent License Negotiations Work?

By David Carnes

A patent is a bundle of rights representing a temporary legal monopoly on a work of technology that is novel, useful and inventive. A patent owner may keep his patent to himself, or he may assign or license it. While a patent assignment represents an outright sale of patent rights, a patent license represents the transfer of partial, temporary or nonexclusive rights.

Patent Term

The patent owner may be in a hurry to profit from the invention, because patents normally endure only 20 years. Since patents are granted retroactive to the original filing date – which may be years before final approval – many patent owners seek to license the patented invention between the date the application is filed and the date it is approved, while it is still in "patent pending" status. During patent negotiations, the potential licensee should demand a discounted price for a pending patent license, to compensate him for the risk that the application will eventually be denied.

Restrictions

A licensor may want to restrict a licensee's use of patented technology in four ways – exclusivity, field of use, time and geographic scope. A patent license may be exclusive or nonexclusive, meaning the licensor may grant a license to only one manufacturer or to more than one. A licensor may also wish to restrict the licensee's permitted field of use; for example, the owner of a coolant patent may insist that the licensee use it only in air conditioning units and not in refrigerators. A licensor may also wish to license the invention for a period of time that is shorter than the remaining term of the patent. Finally, a licensee may wish to restrict the areas in which the licensee may exploit the invention – only outside the United States, for example. A licensee should insist on a discounted fee in exchange for accepting any such restrictions.

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Fees

Three main fee structures are popular – lump sum payment, royalties and advance against royalties. A licensor should insist on advance lump sum payment if he harbors serious doubts about the licensee's ability to sell the invention. Royalties are calculated based on a certain percentage of sale volume or profits, and are appropriate for risk-taking licensors. The advance against royalties fee structure requires the licensee to pay a certain amount in advance, which is then subtracted from later royalties due to the licensor.

The Final Agreement

The negotiation process culminates in the execution of a patent licensing agreement. When drafting a patent license agreement, you must address every relevant issue – the licensee may want the licensor to indemnify him in case he is sued by a third party for patent infringement, for example. The final agreement should be drafted with the assistance of an attorney, who can provide appropriate legal wording for peripheral issues such as dispute resolution, warranties and governing law clauses. The final agreement should be signed by the appropriate representatives of each party.

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Ownership vs. Inventorship of a Patent
 

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What Is Patent Landscaping?

Patent landscaping is a type of research process that creates an overview of the patents that are pending or in place in a particular area. For example, if you are developing a new drug for fighting colon caner, a patent landscape will show you what other drugs are already patented or are awaiting patent approval for fighting colon cancer. Patent landscaping is generally conducted by patent attorneys or other patent law experts.

Reasons for a Patent

A patent is an intellectual property right granted by the U.S. Patent and Trademark Office. There are three types of patents available to an inventor: utility, design and plant patents. To obtain any of these patents, the inventor must fill out and submit a lengthy application along with an application fee. While patenting an invention is not mandatory, it has certain advantages.

Ways of Securing a Patent

A patent is a legal right, provided under federal law, to operate a monopoly on a certain product, idea, process, or other invention for a certain amount of time, typically 14 to 20 years. The U.S. Patent and Trademark Office, a branch of the federal government, only issues a limited number of patents, with only one patent per novel idea. Accordingly, it can be highly lucrative to secure a patent or the use of a patent. The only ways to secure a patent, or the use of a patent, are to either obtain the patent yourself from the USPTO or obtain permission from the current patent holder.

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