How to Sell or License a Patent in India: A Comprehensive Guide

In India, patents represent valuable intellectual property that can be monetised by selling or licensing. If you hold a patent, you have exclusive rights over its use, and you can leverage these rights to generate income. This blog will walk you through selling or licensing a patent in India, highlighting the key steps, documents required, advantages, and legal considerations.

Understanding Patents and Your Rights

A patent grants the inventor exclusive rights to prevent others from making, using, selling, or importing the patented invention without permission. These rights are valid for 20 years from the filing date, subject to the payment of renewal fees. As a patent holder, you can:

1. Sell the Patent: 

Transfer ownership rights permanently to another entity in exchange for a lump sum payment.

2. License the Patent: 

Grant permission to another entity to use the patent while retaining ownership, typically in exchange for royalties or a one-time fee.

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Why Sell or License a Patent?

• Monetisation: 

Generate income from your intellectual property.

• Market Expansion: 

Partner with established entities that can bring your invention to market more effectively.

• Risk Management: 

Reduce the financial and operational risks associated with commercialising the invention yourself.

• Focus on Core Activities: 

Selling or licensing allows you to focus on innovation without the distraction of commercialisation efforts.

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Why is Selling a Patent a Good way to Generate Revenue?

A tiny company owner, “X”, who developed a novel product and received a patent for it but lacks the capital or know-how to produce, advertise, and sell it on their own is an example of selling a patent. The corporation’s proprietor may choose to sell the patent to a bigger organisation that possesses the necessary funds to get the idea to the market. The larger company could then manufacture and sell the device as the new patent owner, possibly earning a sizable return on its investment. In exchange, the original patent holder would get payment for selling the invention and might keep the proceeds for themselves.

He may easily make a nice living only by selling the patent for the newly designed product. Through this, he would be able to profit immediately from his invention’s profits without going through any laborious procedures.

Obtaining or Granting a Patent License 

Procedure for granting/Obtaining a patent license: 

1. Documentation of the agreement between the parties:

As stated in Section 68 of the Indian Patents Act, the licensee and the patent owner must jointly draft and sign a written agreement. The license’s terms and conditions ought to be included in the agreement.

2. Registration at the Patent Office:

The party obtaining the license must register the title or interest in the patent within six months of the agreement’s date by writing to the Controller after the license agreement is signed. Regulations 90(1) and 90(2) as well as Sections 69(1) and 69(2) must be followed in order to complete the registration. To verify the validity of the license, the signed agreement by both parties must be submitted with the application. On request from the licensee or licensor, the Controller may maintain the confidentiality of the license’s terms and conditions.

3. Examined by the Controller:

After receiving the application, the Controller examines it. Following review, the controller, in accordance with Section 67, puts all information, including the details of the supporting documents, in the patent register.

In the event of associated proceedings, the controller or the court will deem any unregistered licensing agreement void.

National Research Development Corp (NRDC) was the assignee of two patents pertaining to a method for producing terpolymers of acrylonitrile butadine (ABS Resigns) by emulsion technology in the matter of NRDC v. ABS Plastics. On July 23, 1975, NRDC granted an eight-year license to ABS Plastics under the terms of the patents. ABS agreed to pay a running royalty in addition to the lump sum royalty required by the license. NRDC filed a lawsuit to recover the unpaid royalties plus interest since ABS had neglected to pay the royalty that was stipulated in the license agreement. Following a review of the matter and hearing arguments from both sides, the court determined that the license was not registered at the patent office, rendering it invalid and, consequently, unenforceable. The court further stated that in order for a licensing agreement to be enforceable, it must be registered with the patent office in accordance with section 69 of the Patent Act.

Restrictive or Illegal License Provisions

According to section 140 of the Indian Patent Act, the following are examples of illegal insertions that are regarded as restrictive conditions in any contract for the sale or lease of a patented product, a product made using a patented process, or a license to produce, use, or work any process that is protected by a patent:

• To compel the buyer or licensee to purchase from the vendor, licensor, or his designees, or to forbid or restrict in any way or degree his ability to purchase from any person, or to forbid him from purchasing anything other than the patented item or an item produced using the patented process from the vendor, licensor, or his nominees, or
• Prohibiting or restricting, in any way or to any extent, the buyer, lessee, or licensee’s ability to use an article—other than the patented article or an article made using the patented process—that is not provided by the vendor, licensor, or his designee.
• To forbid, lease, or license the buyer, lessee, or licensee from using, or to restrict, in any way or degree, their ability to utilize any process other than the patented process.
• To give exclusive grant back, guard against challenges to the legality of patents, and declare any such condition null and void.

Steps to Sell a Patent in India

1. Determine Patent Valuation:
   • Assess the commercial value of your patent based on its potential market, uniqueness, and scope of protection.
   • Consider consulting with a patent valuation expert.
2. Identify Potential Buyers:
   • Identify companies or individuals who may benefit from your patent. These could include competitors, manufacturers, or businesses in related industries.
   • Utilise online patent marketplaces, industry forums, and networks to find interested parties.
3. Prepare a Patent Assignment Agreement:
   • Draft a comprehensive patent assignment agreement outlining the terms and conditions of the sale.
   • Ensure the agreement includes the patent number, scope of rights being transferred, payment terms, and warranties.
4. Negotiate Terms:
   • Negotiate with potential buyers to agree on the sale price and other terms.
   • Consider the buyer’s financial stability, reputation, and ability to commercialise the invention.
5. Execute the Patent Assignment:
   • Once terms are agreed upon, both parties must sign the patent assignment agreement.
   • The assignment must be registered with the Indian Patent Office (IPO) to be legally effective. Submit Form 16 along with the necessary documents and fees.
6. Receive Payment:
   • Upon successfully registering the assignment, the buyer will transfer the agreed-upon payment.
7. Update Records:
   • Ensure the Indian Patent Office updates its records to reflect the new ownership of the patent.

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Steps to License a Patent in India

1. Determine Licensing Strategy:
   • Choose between an exclusive license (granting one licensee exclusive rights) or a non-exclusive license (granting rights to multiple licensees).
   • Decide on the licensing terms, such as royalty rates, payment schedule, and license duration.
2. Identify Potential Licensees:
   • Similar to selling, identify entities that could benefit from using your patent.
   • Approach companies within your industry or use online platforms that connect licensors with licensees.
3. Draft a Licensing Agreement:
   • Prepare a licensing agreement detailing the scope of the license, royalty rates, payment terms, duration, and any territorial restrictions.
   • Include clauses on dispute resolution, confidentiality, and termination conditions.
4. Negotiate the Licensing Terms:
   • Engage in negotiations to finalise the terms of the license.
   • Consider seeking legal advice to ensure the terms protect your interests.
5. Execute the Licensing Agreement:
   • Both parties must sign the licensing agreement.
   • The license registration with the Indian Patent Office is optional but recommended for added legal protection.
6. Monitor Compliance:
   • Regularly monitor the licensee’s compliance with the agreement, particularly regarding royalty payments and adherence to the terms.
7. Receive Royalties:
   • Collect royalties as per the terms of the agreement. Ensure proper accounting and timely payments.

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Documents Required for Selling or Licensing a Patent

1. Patent Assignment Agreement / Deed of Assignment of Patent (for selling)

2. Patent Licensing Agreement (for licensing)

3. Patent Valuation Report (optional)

4. Proof of Patent Ownership

5. Form 16 for Assignment (selling)

6. ID Proof and Address Proof of Both Parties

7. Details of the Patent (Patent Number, Date of Grant, etc.)

8. Proof of Payment of Government Fees

9. Term Sheet Document (Terms of the Agreement)

According to Section 68 of the Patents Act, a patent license is only considered valid if it is documented in writing and registered with the patent office. Additionally, Section 69 mandates that the licensee must register themselves with the Controller of Patents.

Types of Patent Licences

There are various types of patent licenses, each with its own advantages and disadvantages:

• Exclusive License
• Non-exclusive License
• Sub-license
• Cross License
• Compulsory License, etc.

Advantages of Selling or Licensing a Patent

• Immediate Income (Sale): 

Selling a patent provides a lump sum payment, offering immediate financial benefits.

• Ongoing Revenue (License): 

Licensing generates a steady income stream through royalties.

• Risk Sharing:

By licensing, you share the commercial risks with the licensee.

• Market Penetration: 

Licensing allows your invention to reach markets that you may not be able to access independently.

• Focus on Innovation: 

Selling or licensing frees up resources, allowing you to concentrate on new inventions.

Legal Considerations

• Due Diligence: 

Conduct thorough due diligence on potential buyers or licensees to ensure they can honour the agreement.

• Tax Implications: 

Understand the tax implications of selling or licensing your patent, as it may attract capital gains tax or other liabilities.

• Confidentiality: 

Protect sensitive information during negotiations with non-disclosure agreements (NDAs).

• Legal Representation: 

Engage a patent attorney to ensure all legal aspects are covered and to assist with negotiations and drafting agreements.

What is the Patent Pool in India?

A patent pool in India is a collaborative arrangement where multiple patent holders come together to license their patents as a single package. This arrangement allows different companies or entities that own complementary or related patents to combine their intellectual property (IP) rights, enabling licensees to access a broader range of technologies through a single licensing agreement.

Key Features of a Patent Pool:

1. Joint Licensing:
   • Patent pools facilitate the collective licensing of patents, where multiple patent holders contribute their patents to the pool. The pool then grants licenses to other entities (licensees) to use the patents, typically under standardised terms and conditions.
2. Royalty Sharing:
   • The revenue generated from licensing is shared among the contributing patent holders according to pre-agreed terms. This revenue-sharing model ensures that each patent holder is compensated based on the value and contribution of their patents to the pool.
3. Standardisation:
   • Patent pools often emerge around technologies that require standardisation, such as telecommunications, software, and other sectors where interoperability is critical. By pooling patents, these industries can adopt standardised technologies more efficiently.
4. Reduction of Litigation:
   • Patent pools can help reduce litigation risks by providing a single licensing framework. This reduces the likelihood of disputes between patent holders and licensees, as the terms are pre-negotiated and standardised.
5. Access to Innovation:
   • For licensees, patent pools offer a more accessible and cost-effective way to access multiple patents. This can be particularly beneficial for small and medium-sized enterprises (SMEs) that may not have the resources to negotiate individual licenses with multiple patent holders.

Benefits of Patent Pools in India

1. Efficiency in Licensing:
   • Patent pools streamline the licensing process by reducing the need for multiple negotiations. Licensees can access a comprehensive package of patents in a single transaction.
2. Cost-Effective:
   • Licensing through a patent pool is often more affordable for companies, especially when compared to negotiating separate licenses with multiple patent holders.
3. Encourages Innovation:
   • Patent pools can foster innovation by making essential technologies more accessible. This encourages the development of new products and services that build on the pooled technologies.
4. Promotes Standardisation:
   • In industries where standards are crucial, patent pools can help harmonise technologies, ensuring compatibility and reducing fragmentation.
5. Reduces Legal Risks:
   • Patent pools can minimise the risk of patent infringement litigation by offering a clear and standardised licensing framework.

Examples of Patent Pools:

While patent pools are more commonly seen in global contexts, they are increasingly being recognised in India, especially in sectors like:

• Telecommunications: 

Where patents related to standards like 4G/5G technology may be pooled.

• Pharmaceuticals: 

Patent pools can be formed for essential medicines, particularly in public health initiatives where access to affordable medication is critical.

• Information Technology: 

Where software patents are pooled to enable broader use of interoperable technologies.

Legal and Regulatory Framework

In India, the formation and operation of patent pools are subject to competition laws and regulations to ensure that they do not lead to anti-competitive practices. The Competition Commission of India (CCI) monitors and regulates such activities to prevent the misuse of pooled patents and ensure that the pool does not stifle innovation or create monopolistic conditions.

Differences Between Selling a Patent and Licensing a Patent

Aspect	Selling a Patent	Licensing a Patent
Ownership	Full transfer of ownership to the buyer.	The original owner retains ownership of the patent.
Control	The seller relinquishes all control over the patent.	The patent owner retains control, subject to the license terms.
Duration	Permanent transfer of rights.	The license can be for a fixed term or ongoing.
Income	One-time lump sum payment (in most cases).	Continuous income through royalties or periodic payments.
Risk	No further risk or involvement once the patent is sold.	The patent owner assumes ongoing risk, including ensuring compliance with the license.
Commercialisation	The buyer is responsible for commercialisation.	The licensee commercialises the patent, but the owner can set terms.
Legal Formalities	Requires a patent assignment agreement and registration with the patent office.	It requires a licensing agreement with optional registration.
Flexibility	No further involvement after the sale; less flexibility.	Flexible terms can be negotiated for different licensees.
Market Reach	Depends on the buyer’s capabilities.	Can potentially reach multiple markets through different licensees.
Revenue Potential	Limited to the sale price.	Potentially higher long-term revenue through multiple licenses.
Tax Implications	May attract capital gains tax on the sale.	Royalties are typically subject to income tax.
Termination	Once sold, the original owner cannot reclaim rights.	Licensing agreements can be terminated under certain conditions.
Use of Patent	The buyer can use, modify, or resell the patent.	The licensee can use the patent as per the agreed terms, but the owner can restrict modifications and resale.

To Increase your chances of Selling or Licensing your Invention or Patent, take the following actions  

1. Understand your market and target company thoroughly: 

Conduct a broad investigation of the market and, more precisely, the firm you wish to license your idea to (based on our research capabilities).

2. Research the company’s product launches and patent history: 

Try to learn what kinds of items the company has introduced. It would be fantastic if you could locate all the patents the specific company has filed. Patents will provide information about products that will be released soon.

3. Identify problems and brainstorm potential solutions:

Determine the issue and potential technological fixes based on the most recent product, whether a launcher or a patent application. You might even think of another product that the business would find appealing.

4. Focus on the company’s existing products and key personnel: 

Limit your investigation to the company’s merchandise. If at all feasible, arrange to meet with the head of research and development or the relevant person well in advance and inquire whether the product or solution you have in mind will be of interest to them. Before addressing this with the corporation, just be sure to file a provisional specification to protect your interests.

5. Conduct deeper research and refine your product: 

After that, begin utilising your time to conduct additional research and complete the product.

6. Consider filing for a PCT application if your product has global potential: 

You are advised to file a PCT application before displaying the finished product if you believe your product has international value and that your product development is complete. Otherwise, create a comprehensive (non-provisional) specification and submit it to the appropriate office. 

7. Ensure your patent document is robust and comprehensive: 

Most inventors believe that a well-designed product may add value. It’s true that a good agreement can be broken. However, in the case of a patent, the patent document is considered rather than your product when determining value. More is the benefit of protection that is wider and stronger. Even though you have a patent, the corporation or any other rival may get away with your idea if the patent document is too limited.

8. Aim to obtain a granted patent for stronger protection: 

None of the buyers would want this. The patent document needs to be properly designed and has a larger scope to obtain at least the correct value. This will stop rivals from making little adjustments to your patent to design around it. An application patent is worth less than a granted one. You are now prepared to obtain a license for your product. By doing these actions, you will increase the likelihood that your product will be licensed or even sold for a fair price.

Conclusion

Selling or licensing a patent in India can be a lucrative way to monetise your intellectual property. However, it requires careful planning, negotiation, and legal oversight to ensure you get the best possible outcome. By following the steps outlined above, you can successfully navigate the process and unlock the financial potential of your patent.

If you need assistance with patent valuation, drafting agreements, or legal representation, consider consulting with an online legal service provider. They can guide you through each step, ensuring a smooth and legally sound transaction.

Frequently Asked Questions on Sell or License a Patent in India

Q1. How can I sell my patent in India?

Ans1. To sell your patent in India, you must first determine the patent’s valuation, identify potential buyers, and draft a patent assignment agreement. After negotiating the terms, the patent assignment must be executed and registered with the Indian Patent Office. Finally, the payment will be received, and the patent records will be updated to reflect the new ownership.

Q2. What is the difference between selling and licensing a patent in India?

Ans2. Selling a patent involves permanently transferring ownership to the buyer, who controls the patent. In contrast, patent licensing allows the original owner to retain ownership while granting usage rights to a licensee in exchange for royalties or a fee.

Q3. What documents are required to sell or license a patent in India?

Ans3. To sell or license a patent in India, you will need a patent assignment agreement (for selling) or a patent licensing agreement (for licensing), proof of patent ownership, a patent valuation report (optional), ID and address proofs of both parties and the patent details.

Q4. Why should I consider licensing my patent instead of selling it?

Ans4. Licensing a patent allows you to retain ownership while generating income through royalties. It lets you share commercial risks with the licensee and reach multiple markets through different licensees.

Q5. How do I determine the value of my patent in India?

Ans5. To determine the value of your patent, assess its commercial potential based on market demand, uniqueness, and scope of protection. Consulting with a patent valuation expert can provide a more accurate valuation.

Q6. What are the advantages of joining a patent pool in India?

Ans6. Joining a patent pool in India offers efficiency in licensing, and cost-effective access to multiple patents, encourages innovation, promotes standardisation, and reduces legal risks by providing a clear licensing framework.

Q7. How do I register a patent license with the Indian Patent Office?

Ans7. To register a patent license in India, you must execute a licensing agreement and optionally register it with the Indian Patent Office for added legal protection. This process involves submitting the necessary forms and paying applicable fees.

Q8. What is a patent assignment agreement?

Ans8. A patent assignment agreement is a legal document that outlines the terms and conditions of selling a patent. It includes details such as the patent number, the scope of rights being transferred, payment terms, and warranties.

Q9. What are the tax implications of selling a patent in India?

Ans9. Selling a patent in India may attract capital gains tax, which varies based on the duration of ownership and the amount of profit made from the sale. It’s advisable to consult with a tax professional to understand the specific tax liabilities.

Q10. How can I identify potential buyers or licensees for my patent?

Ans10. To identify potential buyers or licensees, research companies or individuals who may benefit from your patent. Utilise online patent marketplaces, industry forums, and professional networks to connect with interested parties.