Patent Licensing Agreement

When a person invents a thing, he wants it to be successful commercially and earn from it as well in any form. An inventor’s first step is to get it patented so that only he has rights to it. Then, if the inventor wants to earn and does not have the capital to put the invention into manufacturing, he can license the patent further. When a patent is licensed then the two parties form an agreement negotiating the clauses as to the needs of all the parties. This agreement is called a patent licensing agreement. This blog focuses on the patent licensing agreement and its clauses.

What is a Patent?

Patent is a form of intellectual property rights, which in turn promotes innovation amongst the masses. In this, an inventor of anything is given a right of authority in sovereign form. It is a legal document that protects the inventor’s invention from misuse by any other person. The inventor gets the right to license it further or make it forward to use it sell it or make new products using the invention.

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What is a Patent License?

Licensing is a kind of agreement between parties to permit the use of something, the patent owner and the licensor in this case where the licensor has to agree to the conditions of the patent owner. Patent licensing is a process through which permission is given to a party to take benefits by using or selling the licensed product.

The license is given to a third party to use the patented invention based on the contract signed up and take benefits through earnings and royalty.

What is a Patent Licensing Agreement?

It is a negotiated agreement that is signed between a licensor and a licensee. This agreement gives the authorization to the licensee to use the patent by all the terms and conditions laid down in the agreement. This agreement is signed for a defined purpose and a certain period.

This agreement is legally binding upon the parties and in case one of the parties doesn’t abide by the terms and conditions of the agreement, that party can be sued by the other party. The agreement has to be registered to provide legal value as per section 67 of the act. It can also be considered illegal in case it is not registered and not in writing, the agreement to be legally binding has to fulfil these two conditions.

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Clauses Under a Patent Licensing Agreement

The various clauses under the patent licensing agreement are:

• Identification of the Parties:

The party that is granting the license and the person who is going to carry out the license should be provided in the contract. The identity section of both parties should contain all the details and information related to the parties.

• Term of agreement clause:

This specifies what would be the terms of the agreement. It also specifies all the date and time-related conditions as well as the expiry of the agreement. Another specification can also be added for the case of bankruptcy or insolvency.

• Recital Clause:

It is the clause that provides for the purpose for which the invention was done and the history related to it. It also provides for this contract to be signed between both parties.

• Definition clause:

This clause defines the words that are essentially being used in the agreement. It is done for aiding to both the parties to understand the agreement better.

• License clause:

It provides for what product has been licensed for and for what purpose it can be used. It also provides for the type of license being entered into by the parties be it exclusive or non-exclusive or any other. It states what a licensee shall be able to do with the patent and what not. It tries to put some limits on the usage of the patent by the licensee.

• Payment clause:

It provides for the payments to be made to the inventor. This payment comprises royalties, accrual, payment, accounting statements, interest, books, records, and audits.

• Licensor’s Patent Rights:

This provides various rights to the licensor and to what extent rights are granted to the licensee as well.  It provides for the partial rights to utilize licensed patents to licensors for earning profits.

• Indemnification Clause:

This clause is a safeguard against any possible damage or loss. It provides for both the licensee and licensor indemnifications. A claim can be made under this clause when the indemnifier does not seek any legal action against the loss or damage caused by the other party or maybe any third party.

• Termination clause:

It provides the list of conditions in case happening would lead to the end of the agreement between the parties. These clauses are added as per the requirement of both the parties.

• Representations and warranties of the licensor:

It deals with who will represent the licensor and what is the warranty for transferring the license. A representation is a fact through which one enters into the contract. A warranty is an obligation or a condition that a fact is, or will be, as claimed or promised, and that the arrangement shields the recipient from damages in the event. 

• Representations and warranties of the licensee:

It deals with who will represent the licensee and what is the warranty for transferring the license. A representation is a fact through which one enters into the contract. A warranty is an obligation or a condition that a fact is, or will be, as claimed or promised, and that the arrangement shields the recipient from damages in the event. 

• Relationship of Parties Clause:

It provides for what is the relationship between the parties of the agreement. It provides that there is no particular relationship like no employer-employee relationship. It also provides that no party has the authority to act on behalf of the other party. This clause is also called a No Agreement clause or an Independent Contractor clause.

• Assignment Clause:

It provides for what are the statutory duties and privileges of both the parties concerned with the patent. It also provides which duties and privileges can be transferred from one party to another and in which scenario.

• Dispute Resolution Clause:

It provides for what steps to be united in case a dispute arises between the parties. The dispute can be contractual or non-contractual. The clause can provide for one or more dispute resolution.

• Force Majeure Clause:

It provides that the parties can avoid implementing the agreement because of any situation which is not in the hands of the parties. The party whose performance is affected needs to notify the other party.

• Severability Clause:

It provides that in case a court or a competent authority finds a clause to be invalid then in that case the other provisions would not be affected and will be considered as distinct.

• Survival clause:

It provides for whether the provisions of the contract will be there or not in case until the contract has been completely executed and terms have also been fulfilled.

• Computation of the Time Clause:

It includes the definition of terms like the year, day, at least, and all the terms that relate to time measurement unless the words selected by the parties suggest that they wish to be taken on in any other sense.

Important provisions related to patent licensing agreement under law

There are provisions which deal with the patent licensing agreements under various laws like:

1. The Patents Act 1970:

• Section 68(5):

It says that the licensing of the patent will be considered valid only in cases when there is a written form of an agreement. This agreement must contain all the terms and conditions of the agreement. It also has to contain the rights and liabilities of both the licensee and the licensor.

• Section 69:

It provides that an application has to be made to the controller for the registration of the title of the license. This application has to be made by the licensee as well as the licensor. The licensee has to apply in writing for the registration of the title or notice of his interest in the controller’s register. The licensor can make an application for the title’s registration in the name of the person who will be entitled to a patent license.

• Section 70:

It gives the registered owner the authority to grant the patent licenses as well as to provide legal receipts in exchange for any form of payment that they have received for granting the patent license.

2. The Patents Rules, 2003:

• Rule 90:

The application of registration to the controller has to be made within 6 months of execution of the patent licensing agreement. This will be made through FORM 16. This is for applications filed by the licensee as well as the licensor.

• Rule 91:

The controller has power under this rule to ask for any document be it agreement as per the application of registration which has been filed to him. With this one is also required to provide 2 copies of the agreement or any document as asked by the controller.

• Rule 92:

It provides how the controller has to register the entry of the title of the licensee or the patent licensing agreement.

Conclusion

The patent license agreement plays an important role for both parties. The main purpose is that both parties negotiate the deal and land upon the terms and conditions that are perfect for both. The main objective of patent licensing is to earn from it be it licensee or licensor. So the patent licensing agreement should be prepared with a focus on all the clauses. One can also hire a professional to do this task of preparing the agreement and also ask him to do the formalities related to it.

Frequently Asked Questions on Patent Licensing Agreement

Q1. What is a patent?

Ans1. A patent is a legal instrument that guards against third parties misusing the inventor’s invention.

Q2. What is patent licensing?

Ans2. Patent licensing is a process through which permission is given to a party to take benefits by using or selling the licensed product.

Q3. What are the types of patent licensing?

Ans3. The various types of patent licensing are exclusive, nonexclusive, and compulsory. Voluntary, cross-licensing, and sub-license. 

Q4. What is a patent license agreement?

Ans4. A patent Licensing Agreement is a negotiated agreement between the licensor and licensee, wherein the licensor authorizes the licensee to make partial use of its patent, in compliance with the terms and conditions of the agreement, in exchange for an agreed royalty

Q5. What is royalty?

Ans5. Patent royalties are the payments made by the licensee to the licensor for the usage of the patent. It is generally a percentage of the revenue generated by the patent, although they can sometimes be agreed upon as a fixed fee.

Q6. How much is the royalty rate of patents?

Ans6. The patent licensing royalty rate is the percentage of the total profit earned through the invention. It is generally between 0.1 to 2.5 %.

Q7. Which clause talks about the provides for purpose of the contract?

Ans7. The Recital Clause provides for what purpose the agreement has been drafted and entered into by the licensee and licensor.

Q8. What is the Dispute  Resolution Clause?

Ans8. It provides for what steps to be united in case a dispute arises between the parties. The dispute can be contractual or non-contractual. The clause can provide for one or more dispute resolution.

Q9. What is an Indemnification clause?

Ans9. This clause is a safeguard against any possible damage or loss. It provides for both the licensee and licensor indemnifications. A claim can be made under this clause when the indemnifier does not seek any legal action against the loss or damage caused by the other party or maybe any third party.

Q10. Which law regulates patent licensing agreements in India?Ans10. The Patents Act 1970 and The Patents Rules, 2003 provide the regulations related to the patent licensing agreement.