Licensing is a form of strategic
alliance, which involves the deal of an agreement
within a right to use certain proprietary
patents, process or know-how in a definite means.
The intellectual property may be registered publicly,
for example in the form of a patent or trademark,
as a means of establishing ownership rights or,
it may be retained within as know-how, it is commonly
based on operational experience.
Licensing purposes may include commercial and administrative
knowledge, as well as technical knowledge. The
licensing agreement is a legal contract establishing
to be transferred from licensor to licensee including
conditions of use.
A license commonly has several component parts,
including protections supposed vital either to
or the licensee.
From Wikipedia, the free encyclopedia
A license or licence in the sphere of Intellectual
Property Rights (IPR) is a document, contract or agreement
giving permission or the 'right' to a legally-definable
entity to do something (such as manufacture a product
or to use a service), or to apply something (such as
a trademark), with the objective of achieving commercial
the party giving the permission is referred to as
the 'licensor' and the party receiving
the license as the 'licensee' or 'licensee'. To be
able to license a right, the licensor must have legal
title or 'proprietary right' to it.
licensor typically offers the license with specific
as the period of use, the territory of use, etc.
Both the licensor and the licensee have specific
which is expressed in the body of the agreement
or is expressed in the law of the country or region
or an international covenant, which governs the
of the agreement.
law, the document is the evidence of a license to
be distinguished from the underlying license,
is the actual permission to an act in a way that
would be otherwise unlawful.
in reference to property,
a license was the right of an individual to enter
upon the property of another to do an act that
otherwise been considered illegal as a trespass,
such as walking in the woods, hunting game or
be distinguished from a license coupled with an interest,
which is an irrevocable
that granted some interest in land or in a
a license could be enforced with an injunction.
Licenses can be gratuitous, revocable at will
a bare license) or a type of bailment.
The Patent License Agreement
license agreements are based on two essences of law
- the law of contracts, which enforces the promises
of people, and the law of torts (wrongful act done
willfully), which enforces the reasonable conduct
The points generally applicable to license of other intellectual property
rights has to be remarked that the main difference between a license and
an assignment is that the former provides that the Licensor retains legal
title of the property and the latter does not.
the law of contracts, there are responses for the
breeches. The contracts itself shall provide others:
make it easier to write the rest of the agreement
in a form that's easier to understand. Generally
to identify the licensed patents, licensed products,
territory covered, and such terms as Net Sales, Improvements,
license to be exclusive or non-exclusive, grant sublicenses,
rights to reserve solely to Licensor.
payments per period in currency or units, especially
important for exclusive licenses. Define the royalty
percentage, and its basis (usually Net Sales). Define
patent expenses, if it's still pending, and the patent
reports that the Licensee has to provide to verify
the base that the royalty is applied, periods (usually
quarterly). Define access to Licensee's records for
audit purposes, and the procedures. Define also the
delay must the Licensee retain these reports after
the events Licensor make improvements in the invention.
responsible for prosecuting infringer's of the patent.
In some situations the Licensee's interest is to
let the patent fail. Define when Licensee's product(s),
based on Licensor patent, infringes the patents of
others and to avoid taking on this responsibility.
good practice to require the patent number should
be displayed in the product.
Licensee guarantee to produce some quantity-level
of product or some amount of sales, to define the
use of best efforts to commercialize; to maintain
some quality level; define Licensee indemnify you
for product liability, defining clearly stated, and
that it survives termination of the agreement.
that the parties are independent contractors, ie.,
the actions of one are not binding on the other.
conditions as the Licensee goes out of business or
becomes insolvent, or declares bankruptcy. Important
to include provisions that automatically return the
rights to Licensor, and don't get engaged with Licensee's
weighted down assets.
statements as that occasional waiving of Licensor
rights, or acceptance of late payments, does not
alter your contract rights. Define statement that
the contract can be modified only in writing.
statement that Licensor are providing no other warranties.
Prevent warranting Licensee's freedom from infringement
of patents of third parties. Prevent warranting that
the patent(s) is valid. Prevent being considered
a "merchant" under the Uniform Commercial
Code - the UCC is stacked in favor of the buyer.
Exclude any liabilities for consequential damages.
notices required, where and to whom are they to be
sent and when do they become effective.
Licensee transfer rights (typically not allowed).
how long is the license to last, generally it's to
expiration of the patent or the last expiring patent,
except as provided under Termination.
any defaults not covered elsewhere, as what is the
form of notices of default and how long has Licensee
to correct defaults; liabilities to Licensee's products
in process and orders in process.
laws legal responsibility by Licensee as Import-export
or product regulations and that Licensee agrees to
obey and conform to such laws and regulations.
following subjects habitually occur in patent license
negotiations. They are best dealt with by separate
Know-how and technical assistance
Licensee may request additional services, or materials,
to the patent rights license.
trade secret rights in addition to, or in place of,
the patents rights conveyed above.
a general rule, at least as a starting point, royalties
can be expected of about 5% of net sales. This varies
considerably across industries; it's certainly not
5% in the auto industry, and about 3% to 3-½%
The important is to combine Licensor rights and the Licensee's resources
in a way that will benefit both. The Licensee is looking at profitability.
It's trying to balance its risk against its potential gain. In negotiations,
it's very important to quantify this. The general feeling is that the Licensor
should get about 25% of the pre-tax profitability and the Licensee about
75%. Above all, never over-price, which is the worst restriction to successful
key to successful negotiation is meticulous preparation.
During negotiations, the objective is an advantageous
to both sides resolution.
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