The Patent Light

Generally, there are two ways of transferring intellectual property to others: (1) an assignment, and (2) a license agreement.

Assignments:

An assignment is a legal document which transfers all the rights in an intellectual property to another.  Patent and trademark assignments, for instance, are typically registered with the U.S. patent office and are a matter of public record.

Licenses:

A license is a legal contract where the owner (or Licensor) keeps the legal right in the intellectual property, but allows the licensing party (or Licensee) use of some subset of the rights (such as the right to make, use, or sell products incorporating the intellectual property).

Licenses can be structured for any form of intellectual property.  However, this post will focus on a Patent License. Patent licenses can be structured with a high degree of flexibility and complexity to accomplish the specific business objectives of a licensee or licensor.   The provisions of a very basic patent license agreement (and the issues addressed) usually include:

1.         Grant or Scope of the License.

a.          Exclusive or non-exclusive.

b.         Which patents (e.g., entire portfolio, particular patents, or even particular claims of a patent).

c.         Rights Granted. (e.g., the rights to “make,” “use,”and “sell”).

d.         Field of use (e.g., types of products or market segments).

e.         Territory.

f.          Right to sublicense the rights granted.

2.         Payments.

a.         Lump sum or royalty bearing (percentage or unit based).

b.         Initial fees or payments.

c.         Minimum payments.

3.         Warranty and Indemnification.

a.         Warranty of title.

b.         Warranty of validity.

c.         Indemnification for infringement of third party rights.

4.         Future Improvements.

a.         Ownership of the future improvements developed by the licensee.

5.         Litigation.

a.         Notice of claims by third parties.

b.         Notice of third party infringement.

c.         Determination of rights and obligation to enforce.

d.         Allocation of infringement awards.

6.         Patent Marking Obligations.

7.         Assignability of the License Agreement

8.         Term of the License Agreement.

9.         Termination of the License Agreement.

A detailed discussion of license provisions is beyond the scope of this post.  Generally, however, if the intellectual property owner wants to sell rights in the intellectual property for a single lump sum, the owner will generally want to use an assignment.  On the other hand, if the owner wants a stream of income or multiple payments, the owner will generally want to use a license agreement.