Car Factory
  • Tanisha Gupta

Understanding Patent License Agreements

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?