A Patent License Agreement is a legal contract between a patent holder and a company for marketing an invention which belongs to the patent holder. The patent holder does not have the resources to market the invention and hence gives the company the rights to sell the invention at a profit. There are two parties to such agreements, namely the patent holder and the company.
The invention cannot be produced without the permission of the patent holder and it is the patent holder’s choice as to whom the rights of reproducing the invention will be given to. The patent has to be registered with the authorized body and a patent number will be allotted to the patent holder. The patent holder has to pay a specified fee for registering the patent and this patent is valid for a limited duration.
When do you Need Patent License Agreement
A Patent License Agreement is required when an individual has an invention which is marketable but does not have the resources or infrastructure to market it. The patent holder then seeks a company which has the expertise to produce and market the patented product. The purpose of the patent license agreement is to protect the interest of both the patent holder as well as the company and ensure that both parties gain from the agreement. The patent holder grants the company the exclusive rights to produce and market the invention.
Inclusions in Patent License Agreement
A Patent License Agreement is a bipartite agreement so the names of the patent holder and the company must be included. The Patent License Agreement must include the effective date of the agreement, the license being granted, the geographical area which the license covers, the business plan for marketing the invention, the fees and royalties payable, reports and payments related to the royalties, confidentiality and the use of the patent holder’s name.
The agreement should also contain the term for which the agreement will be valid and the events which would lead to the termination of the agreement. There should be a clause on patient prosecution and maintenance where the company will reimburse the patent holder for any legal or filing expenses relating to the patent.
How to Draft Patent License Agreement
When drafting a Patent License Agreement, the following points need to be kept in mind:
- The names of the parties to the agreement and the relationship between them need to be incorporated
- The patented product or service being marketed by the company also needs to be mentioned
- The compliance with the laws of the state under whose jurisdiction the agreement is being made should be stated
- The duration of the agreement and the events which lead to the termination of the agreement must be mentioned
- The details of the license including what rights have been given to the company should be mentioned
- The profit-sharing ratio between the patent holder and the company have to be stated
- The rights and liabilities of both the patent holder and the company are to be mentioned
Benefits of Patent License Agreement
The benefits of having a Patent License Agreement are given below:
- The interest of both parties, namely the patent holder and the company, are protected. The benefits which accrue to both parties are clearly mentioned and they are assured of receiving it. If there is a breach of contract by either party, then the agreement is null and void.
- Ownership of the patent remains with the patent holder. The patent holder will receive royalty income and yet retain the ownership of the patent
- The patent holder and company both gain from this agreement. The patent holder is able to monetize the invention and the company gets a marketable product or service for which they will have the exclusive rights to produce. This will give the company an edge over its competitors.
Types of Patent License Agreement
The are 2 types of Patent License Agreement as under:
- Exclusive licensing agreement: Under this agreement, the licensee (company) has the sole rights for using the intellectual property during the length of the agreement. It is like an assignment of rights by a property owner where the licensee has the exclusive right to produce, use or sell the property in any way. The property owner’s right is not required.
- Non-exclusive licensing agreement: The licensee does not get exclusive rights as per this agreement. The licensor can use other licensees to produce the patented product or service. In such cases, the licensor can prevent sub-licensing.
[Also Read: Patent Assignment Agreement]
Key Terms of Patent License Agreement
The key terms of a Patent License Agreement are mentioned here:
- License: The License Grant mentions the rights being given to the company by the patent holder, including sublicensing rights if any.
- Licensed product: Relates to the products or services, which in the absence of licensing, would lead to infringement of patent rights.
- Diligence: The business plan for use of the patent rights needs to be submitted within a certain period of time.
- License initiation fee: This is a non-refundable, non-creditable fee which will be paid to the patent holder by the company.
- Milestone payments: These payments will be made during the trial phases of production to the patent holder.
- License maintenance fee: This is an annual fee payable by the company to the patent holder.
- Reports: The details of the fees paid by the company to the payment holder will be provided through reports.
Sample Patent License Agreement
You can download a sample Patent License Agreement here.
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