What is a Patent License?

Patent license is an agreement between you as the IP right owner and another party. It grants them permission to do something that would be an infringement of the rights without the license.

Patent licensing may come about in different forms, and patent licenses can be classified as exclusive or non-exclusive. Under an exclusive license, a patent owner transfers all indicia of ownership to the licensee only retaining the title to the patent. From the point of view of the patent owner, he surrenders all rights under the patent (including the right to sue for infringement and the right to license) to the licensee. By granting a non-exclusive license, the patent owner essentially promises not to sue the licensee for patent infringement.

Essentially, a license is a form of contract. Although enforceable contracts may be either oral or written, using a written contract offers many significant advantages. There are four critical elements of a contract:

  1. offer and acceptance,
  2. competent parties,
  3. consideration, and
  4. legal purpose.

Mere offer and acceptance are not enough to form a legally binding contract if the agreement is too indefinite. Negotiating parties should thus be sure to include all the necessary terms. If a written contract was never prepared, the courts will follow the intent of the parties. If their intent was to be bound before the document was prepared, the agreement is binding; if their intent was to be bound only after the preparation and execution of a written agreement, the agreement is not binding.

The patent license provides various benefits, the two most crucial of which are:

  • The patent license allows to sharing costs and risk between the parties, where a company licenses the right to manufacture and sell products, the licensor receives revenues from that licensing but does not take the risk of manufacturing, promoting and selling those products.
  • The patent license also helps with increasing market penetration, where an owner of an IP right, such as a patent right, may license another business to sell in territories that the owner cannot cover.

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