Patents protect inventions from infringement, and inventors can negotiate licenses for others to make, distribute, and sell their products. Licensing agreements vary by country and can be exclusive or non-exclusive, with performance obligations and royalty payments. Inventors may prefer lump sum payments instead of royalties.
A patent protects an invention against infringement: anyone other than the patent holder who makes use, sale, or distribution for sale of the article or process. No one but the patent holder can incorporate the invention into another product already on sale. To bring the invention to market, however, an inventor can negotiate a license for the invention to a licensee who will then make the product, distribute and sell it. When the patent owner or patent pending enters into a patent license, the licensor and licensee will enter into a formal agreement, known as a patent license agreement, which enters into and permits use of the invention for exclusive use or non-exclusive. This agreement will also require certain payments, performance obligations, and revenue reporting from you.
Patents can be individually owned, jointly owned by multiple inventors, or partially assigned to the patent owner’s investors or employers. Laws governing the process of obtaining a patent, patent licensing, and the requirements of both parties to a licensing agreement vary from country to country. Patent licensing can grant usage rights on an exclusive basis where the licensee receives all the benefits of ownership and only the title itself is still retained by the patent owner. This gives the licensee the ability to sublicense the product to others or cross-license to others for use in the same product or similar products on the market. An exclusive license allows the patent owner to negotiate higher royalty rates, since the licensee’s competition will not have the rights to access and use the invention unless the licensee assigns the rights to others.
Non-exclusive patent licenses may be in favor of one or more parties and may limit use to certain geographical areas of the globe or to specific time intervals. International patent licensing restrictions vary from country to country, although some are governed generally from the continent. A non-exclusive license is, typically, just a promise to the licensee that the licensee will not be sued for the owner’s use of the patent within certain geographical or temporal parameters. Identifying who may be good licensees requires researching manufacturers, researching online, attending trade shows, and questioning prospects carefully. Unless the negotiations are preceded by a confidential agreement between the parties wishing to enter into negotiations, the query can give potential licensees reasons for their own infringement case, and this tactic has been used to avoid the expense of obtaining a license to patent . “Patent trolls” make quick use of these types of overtures to obtain usage rights.
In patent licensing agreements, the licensor can require the licensee to meet performance obligations. Those obligations may include qualifying for certain certifications such as passing Food and Drug Administration (FDA) requirements or regulations, or the obligation may be to meet certain sales targets by certain dates. The licensor not only wants to make sure that the licensee will execute these, but also wants to make sure that the licensee doesn’t license the patent just to be part of it. These performance obligations, if not met, would revert the license to the original patent owner for resale or the patent license once again due to breach of contract. The licensor wants to be sure that the licensee invests in pre-market preparation and strong marketing practices and that the licensee is likely to meet a minimum royalty payment obligation.
A patent license is an agreement most often made when the inventor is trying to reap the rewards for the invention by regular royalty distributions. Royalty distributions are specified in patent licensing agreements for certain time periods and supported by an audit capability. Some inventors prefer not to receive royalties for an extended period of time, but want a lump sum for usage rights. These patent owners don’t want the uncertainty and risk of waiting for royalties, but they do want a single, one-time price for the rights and privileges they’re passing on. Lump sum calculations may be less than the amount received in royalties over time, but will be for a specified and certain amount.
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