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Patent Licensing

Patent is an exclusive right granted to the inventor for his invention which is either a process or a product. Receiving grant for an invention or possessing exclusive rights over an intellectual property offers several advantages to the patentee which includes financial benefits. One of the ways to take financial benefit of patent is patent licensing.

Licensing is a major facet of intellectual property. A license agreement is a partnership between two persons, one patent owner and other known as licensor who is authorized to use patent.

Patent Licensing

Patent licensing is a process of granting permission to a third party to extract benefits by selling and using the licensed product. The patent owner gives license to a third party to use his patented invention based on the agreement and royalty. The license can be given for a period of time as per the mutual understanding between patent owner and licensee. During this time period, the licensee can use patented invention and can take financial benefits.

Licensing is a contract between two parties where licensor agrees the terms and conditions of patent owner. Since it is a contract or agreement, it must follow the Sections 10 and 11 of Indian Patent Act 1970. As per Section 68 of the Patent Act 1970, the agreement must be in writing.

Advantages/Disadvantages of Patent Licensing

Once patent license procedure is completed, both licensee and licensor have few advantages and disadvantages. The patent owner can transfer risk of manufacturing /production of a design or a product to licensee. The patent owner need not worry about mass production and global market. If the patent is licensed to a well established company having a large customer base, then patent product will have a large market and patent owner can get good financial benefit. However, lots of efforts are required to find the appropriate licensee for the invention.

It is very important to get a potential licensee and have a written agreement so that chances of success will be more. The main disadvantage of patent owner is that he loses his own control either partially of fully on his own invention for the period of license. It is always a risk for patent owner as he has to believe on licensee, his strategy, quality management and commercialization the patent product to get more financial benefits. The licensee may have to pay more royalties if he wanted to expand the production/sale of patent product into other markets. The patent owner gets his exclusive rights over his invention once the license duration expires.

Types of Patent Licensing

There are eight types of patent licensing as described below;
  1. Exclusive License

    In Exclusive licensing, all the rights except title of the invention are given to the licensee. Patent owner transfers the ownership of the patent to the licensee. Patent owner has only the title of the invention. Thus licensee acquires all the responsibilities related to the invention. However, licensee cannot license the patent to anyone else. It is exclusively granted to him/her. Thus licensee is only the authorized person to use the patented invention.
  2. Non Exclusive License

    In Non Exclusive Licensing, the license of the patent can be granted to more than one party and all of them can commercialize the patent into the market. Thus, patent owner has rights to license his patented invention to more than one party.
  3. Sub License

    Licensee has rights to issue Sub license to different organizations for making the product of patented invention. Patent owner give rights to licensee and the licensee has the right to issue the license further to a third party that can use patented invention. The financial benefits will depend on the contract between the primary licensee and third party.
  4. Cross-Licensing

    Cross-Licensing is the exchange of licenses between different organizations and creators. When invention requires the support of other products to make its place in the market, Cross-Licensing process is used.
  5. Voluntary Licensing

    Voluntary licensing is an act of goodwill towards the society. It is also applicable for pharmaceutical patents. In Voluntary Licensing, patent owner can license his patented invention to other parties on exclusive or non-exclusive basis and give right to manufacture, import or distribute a pharmaceutical product. According to the agreement, licensee can sale and distribute the product in a market. Patent owner gets its royalty as per the terms and conditions mentioned in the agreement.
  6. Compulsory Licensing

    In Compulsory Licensing, the authorization is given to a third party to make, use or sell a patented invention without the consent of patent owner. According to the Sections 84 and 92 of Indian Patent Act 1970, if the specified conditions are satisfied, license can be granted to a third party without permission of patent owner. According to Section 84 of IPA 1970, any person who is interested or already the holder of the license under the patent can request to the Controller for grant of Compulsory License after three years from the date of grant of that patent. The patent office considers the nature of the invention, ability of the applicant to use the invention for the public interest, any measures already taken by the patentees or any licensee to make full use of the invention and time elapsed from grant of the patent. Compulsory Licensing is usually reserved for pharmaceutical patents. Government allows someone to practice patented invention to make, use or sell patented invention without taking permission of patent owner for the public benefits.
  7. Carrot Licensing

    Carrot Licensing is one of the approaches of patent licensing. This approach is suitable when prospective licensee is not in the practice of the patented invention and not falls under any obligation to take a license. In this case, patent owner has to convince the party to use his product and how licensing the product can be beneficial for them. Carrot Licensing is a marketing policy where the patent owner tries to show the licensee what could be achieved by taking a license for his patent.
  8. Stick Licensing

    Stick Licensing is another approach of licensing which is totally contrast of the carrot licensing. In Stick Licensing approach, prospective licensee is already using the patented technology and thus infringing the patent. The patent owner can file a suit against the infringer or settle with the infringer agreeing to license his patent.

Licensing under Indian Patent Act 1970

Sections 84-92 of IPA 1970 are related to Licensing of a patent. According to the IPA 1970, patent licensing should be in writing between the licensor and the licensee. Section 84 of IPA 1970 states the terms and conditions required for issuing Compulsory Licensing. The Act has the provision and empowers the Controller to issue the Compulsory Licensing to a third party. Compulsory Licensing is possible only if the patented invention is useful to public health or in National Emergencies or health crisis. According to the 84 Section of IPA 1970, after three years from the grant of the patent, any interested person can write an application to the Controller for grant of Compulsory License on the following grounds:
  1. the reasonable requirements of the public for the patented invention have not been satisfied
  2. Patented invention is not available to the public in affordable price
  3. Patented invention is not worked within the territory of India.
After receiving the application, the Controller can grant a Compulsory License to that party/person.
However, before granting the Compulsory License, the Controller has to consider several factors such as:
  1. Royalty/remuneration for the patentee are reasonable
  2. Licensee will use patented invention properly
  3. Patented invention will be available to the public at reasonable prices
  4. The license is non-exclusive and non-assignable
  5. The license will not be longer than the term of the patent
  6. Licensing the patented invention is for the better supply in Indian market
  7. If patented invention is for semiconductor technology, the license granted is for non-commercial public use.
Compulsory Licenses can be granted to a pharmaceutical products and export of certain pharmaceutical products that are necessary for public health of a country having weak capacity of pharmaceutical industry can be allowed.

Patent License and Patent Assignment

In Patent License, patent owner grants permission to a third party to extract benefits on the patents for limited period of time. Transfers of rights are temporary in nature. In
Patent License, the licensee has to pay the royalty to the patent owner for the entire duration of the license period. In Patent Licensing, patent owner still hold the rights on his patented invention.

In Patent Assignment, patent owner transfers exclusive rights of the patent to a third party permanently. Such a transfer is recorded in the official patent record. In Patent Assignment, the assignee has to pay the lump-sum amount to the patent owner/assignee in the beginning and later can receive profits from the patented invention.

Patent Assignment is a complete transfer of rights to a third party. Patent owner do not have any rights on his patented invention once patent is assigned to a third party.

Imperative tips for Patent Owner

Patent owner should think before licensing his patented invention and should thoroughly study on following points before licensing his patent:

  • Whether to invest capital amount or licensing can be better option
  • If licensing option is selected then whether an individual or a company can be better option
  • If selling patent is chosen then whether keeping rights on patent is important to or not
  • Market Research is very important before licensing, companies who are manufacturing a similar kind of product can be checked
  • Showcasing the patented invention is also very important to get the best company as a licensee.

Considering above points, patent owner can decide the options of licensing, selling or manufacturing his patented invention. In licensing the patent, the patent owner should chose licensee carefully and thinks about royalty. A big company can offer good royalty. The royalty rate can vary from five to twenty percent depending on the licensee.

Limitations of Patent Licensing

Licencing is very convenient way for the patent owner to take financial benefits from his patented invention.

However, licensing has few limitations and risks as follows:

  • Licensing could be less profitable. It may happen that if patent owner make the invention available in market can achieve more profit than licensee. Though investing capital is a risk, but profits can be more than expectations.
  • Patent owner has to depend on the licensee for profits. Patent owner is totally dependent on the licensee, his sources, his skills and the efforts for marketing the patented invention and further for financial benefits. Thus, if proper licensee is not selected then the product may fail in market.
  • An agreement of licensing should be drafted very carefully. All the terms and conditions related to royalty and further processing should be stated clearly in the agreement. Also agreement should clearly states all the clauses related to investment and data related to patented invention.
  • The licensee has to pay fixed royalties to the patent owner irrespective of the status of the product in the market.

Patent licensing means granting permission to a third party for using/selling patented invention. Patent owner can get good financial befits by licensing his patented invention. According to Indian Patent Act 1970, patent licensing should be in written format and satisfy the clauses stated in Section 84-92 of IPA 1970. The license agreement is between two parties, one is licensee and other is patent owner or licensor. At most care should be taken while selecting the licensee and drafting the agreement.


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