Patent License Agreements

Patent Licenses typically grant a licensee the right to use, modify, and commercially exploit a particular patent. For example, ABC, Inc. might hold a patent to a new type of picture frame, and the agreement can give the licensee the right to make the picture frames, the right to sell them, the right

The key issues involved in patent licenses include:

• Nature of the License: Is the patent license exclusive or non-exclusive? An exclusive license means that no one else may use the patent during the term of the license. If you want total exclusivity, make sure to spell out that the license exclusivity prohibits the licensor from using the patent.
  
  
• Term: The length of the license is important. The licensee will typically want the term to be as long as possible. However, it is important to remember that patents don't last forever, and you can't obtain more rights in a patent than the patent holder has.
  
  
• Uses: The uses of the license must be clearly spelled out. Ideally, the licensee will be able to exploit the license for any purpose whatsoever, but the licensor may want to limit the use to certain applications, to certain geographical territories, or to certain markets.
  
  
• Royalties: What will be paid to the licensor for the license? Royalty payments can be structured in many ways: an upfront one time payment, periodic payments based on sales of the patented product, yearly payments, or formula payments based on aggregate products developed over time.
  
  
• Infringement: The licensee will be very interested in making sure that the patent does not infringe on the rights of a third party, and will expect some protection from claims of infringement against the licensee. The licensee will typically do this by insisting upon an indemnity from the licensor in the event of such infringement claims.
  
  
• License Violation: The licensor will want to include specific consequences for any licensee misuse or other violation of the agreement. This could include a financial penalty or termination of the agreement.
  
  
• Termination: The license agreement will also address when and how one side can terminate the license. Ideally, the licensee will want the license to be irrevocable, other than perhaps where there is a material non-payment by the licensee. The licensor may want to build in several termination rights in order to retain flexibility in the even that he finds the licensee isn't exploiting the patent enough or maximizing revenues sufficiently to be licensor.
  
  
• Licensee Obligations: The licensor may insist upon certain obligations of the licensee — for example, that the licensee spend a certain amount of money to develop and market the product, that the product remain of a certain quality, and that the licensee not do anything to adversely affect the value of the patent.
  
  
• Sublicense: Typically, the licensee will want broad rights to be able to sublicense the patent, while the licensor may want limitation on that right.
  
  
• Derivative Products: The license agreement should address who owns any derivative products or technology developed by the licensee. Ideally, the licensee will want to be deemed the owner, but most licensors will resist that.
  

Patent licenses can be tricky, so you need to hire a good lawyer to help you sort through the maze of issues. This could be your business lawyer, but you will probably want to consult a lawyer with experience drafting intellectual property licenses.