Patent Licensing In India

Licensing is an integral part of the IPR in India. Licensing is a way to earn through the invention of the inventor. The patent licenses are given by signing a patent licensing agreement. An agreement is signed between two parties one patent owner and the other licensor giving authorization to use the patent against the financial benefits be it in the form of royalty or other.  The Indian Patents Act, 1970 provides for patent licensing in India. This blog focuses on patent licensing in India.

What is a Patent?

It is a type of intellectual property rights. It is a legal instrument that guards against third parties misusing the inventor’s invention. The owner of the innovation has the right to grant additional licenses, transfer ownership, use, sell, or create new goods utilizing the invention. It encourages public innovation.

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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. This contract is drafted for a certain period and is to be drafted by sections 10 and 11 of the act. It should be in writing, as in section 68 of the act.

Kinds of Patent License

1. Exclusive Patent License:

In this type of license, the licensee is granted all the rights but not the title of the invention. It is defined under section 2(f) of the act as a license given to the licensee which provides by the inventor providing only him the exclusive right on licensee and no one else be able to use it not even the patentee himself. The ownership of the patent is transferred to the licensee by the patent owner, but he has the title of the patent to himself. The licensee has all the responsibilities related to the invention but he can’t license it further; only he has the exclusive right on the patent and cannot sublicense it to a third party.

2. Non-exclusive Patent License:

In this type, the patent owner has the right to license the invention to more than one party.  It can be granted to many parties at the same time. The licensor has the title of the license and the licensee can still use the licensed patent rights. The licensees who have been granted the license can take the benefits of the patent and commercialize it in the market for financial benefits.

3. Sub-license:

In this, the licensee can issue a sub-license to a different party. The patent owner gives the license to the party to become the licensee, the licensee in turn has the right to issue the license further to a third party to make use of the patented invention. The benefits will be shared by the contract or the agreement between all the parties.

4. Voluntary License:

It is done as an act of goodwill. The patent owner can license the invention to other parties which can be exclusive or non-exclusive preference. It gives the license the right to manufacture, import, or distribute the product. The patent owner shall have the rewards as per the contract drafted. It is generally done in the pharmaceutical industry.

5. Compulsory License:

This is usually done in the public interest. There can be circumstances in which the government can grant the licenses to third parties without obtaining consent from the patent owner. Sections 84 and 92 of the act provide for compulsory licensing. Section 84 says that if a person wants to apply for a license he can apply to controller general of patents. The application will be considered on the basis of accessibility, affordability, and domestic functionality. Section 92 provides that in case of a national emergency, the government can grant the patent to a person or an organization and notify the public about the same. In India, the concept of compulsory licensing was introduced through the case of Bayer Corporation v. Natco Pharma Ltd.(2019), the government granted compulsory licenses to Natco Company related to drugs used for stage 4 kidney and liver cancer.

6. Carrot License:

In this, the patent owner only provides the technical knowledge about the invention to the licensee, the licensee is not allowed to manufacture, use sell, or take any form of benefits from it. This is generally used by the ones who want to develop a technology by using or taking inspiration from the already existing patented technology to move further and get better inventions for society to use.

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Advantages of Patent Licensing

• The most basic advantage is the generation of revenues through licensing. The financial benefits include one-off payments, royalties, or payments as per the contracts. One can earn a royalty of up to 20% of the net revenue which is generated by the patents.
• It helps introduce an invention to the international market. It helps to make the product stand internationally and also helps in the production of large quantities as producing a huge quantity of a product separately won’t be possible for all organizations. It helps in production in bulk and distribution worldwide of the product.
• Suppose a patent license is taken by a company that is already established and has a large customer base. In that case, the product will be able to get into a consumer market easily, thus helping with sales.
• The risk associated with the manufacturing of the invention is transferred from the inventor to the licensee. Licesning reduces the risk factors one would generally face for manufacturing and marketing of the product. 
• The licensee is done for a certain period of time; when the time period is over the inventor gets all the rights related to the invention back.

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Disadvantages of Patent Licensing

• There is a loss of control by the inventor when the invention is licensed to the licensee. The control is lost, which is either complete control or partial control as per the agreement.
• It takes a lot of effort for one to get the perfect licensee for the invention. The inventor would prefer to get the most suitable licensee for the invention to get great success.
• The patent holder has given the responsibility to the licensee to commercialize the product, and it’s up to him to determine how much success it has or can fail.
• The licensee can have poor quality management which could lead to damaging the invention or reputation in some manner.
• There are chances of conflicts between the patent holder and licensee in relation to use or revenue generation or anything.

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Challenges Associated with Patent Licensing

• To determine a fair value of the patent can be a complex process, finding out a fair value can be difficult for both the patent holder and the licensee.
• Both parties may have different interests associated with the patent licensing negotiation between both parties can be a difficult thing as both will want their benefits drafting an agreement catering to the needs of both parties can be a difficult task.
• The contracts drafted should be by the legal rules and regulations and the process should also be by national as well as international laws which can be complex sometimes.
• There have been advancements in technology and the market has been changing constantly which can prove difficult for the product invented.

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Restrictive/Unlawful Inclusions in a License

The Indian Patents Act 1970 in section 140 provides for the restrictive conditions in the patent licenses. This section’s main purpose is to avoid including conditions that are restrictive or unlawful in any manner and ensure that the patented inventions are used fairly and as well as easily accessible. These unlawful inclusions are:

• Requiring a licensee to purchase from the licensor or only from the vendors that are provided by the licensor or prohibiting to buy from anyone else.
• Prohibiting the licensee from using or restricting in a certain manner on using an article other than the patent which is not supplied by the licensor.
• Prohibiting or restricting the licensee from using a process other than the patented process.
• Providing the grant which is exclusive back and preventing challenges to the patent.

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What are the Common Mistakes Committed during Patent Licensing?

There are some instances when the licensee uses the patented product before the agreement has been signed which in turn could lead to patent infringement, he should try to ensure that the patented product is used only after the agreement has been signed.

When a patent holder is giving the license to a party he should ensure that the party is competent to ensure success. There are some circumstances when the inventor is in a hurry to get more success and earn it through the success of the invention he could provide the license to a non-competent person which could lead the invention to fail in the market.

The inventor is still the owner of the product even though he has licensed it to someone else he could be held liable for any issue. The inventor and the licensee should be aware of all the liabilities related to the patented product in order to avoid any form of chaos.

What are the Approaches To Patent Licensing?

Carrot License:

In this, the patent owner only provides the technical knowledge about the invention to the licensee, the licensee is not allowed to manufacture, use sell or take any form of benefits from it. This is generally used by the ones who want to develop a technology by using or taking inspiration from the already existing patented technology to move further and get better inventions for society to use.

Stick Licensing:

It is an opposite form of carrot licensing. It is a way in which a person is already in use of your technology and violating your patent, it is just used as a coverup to avoid legal issues.

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What is Patent Licensing Royalty Rates?

Royalty is the amount that has been decided to be paid to the inventor against the license given. The investor and the licensee enter into an agreement that clearly states that the rights are given to the licensee and the licensor has to receive a certain amount of money. This amount is generally fixed and is known as royalty. 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 %.

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Imperative Guidelines For Patent Owner

The patent owner should consider various points before deciding upon licensing the patent, these are:

• Is it best to license the product or invest the capital to make the patent commercially available in the market
• In the case of licensing whether to choose an individual or a company considering all aspects which would be better for the patent
• The patent owner needs to do the research before taking any sort of decision 
• The patent owner needs to showcase the product to attract the best licensee

Limitations of Patent Licensing 

There are certain limitations attached to licensing such as:

• The licensing of the product may not be as profitable for the inventor  as in case if he would directly make the invention himself available in the market, for that he would be required to raise the capital which has some risks attached to it,
• The licensee has to make use of skills and resources to make an invention commercially successful. Thus the patent owner’s profits and royalty depend upon that,  the patent owner can’t do anything but choose the best licensee to ensure success otherwise it could fail. 
• The agreement license should be drafted very carefully, it should clearly state the terms and conditions related to sale, manufacturing as well the profits and royalty. It should also provide all the details of the patent, the period of allocation of the license, and all related to avoid any form of issues later. The licensee and the inventor may have different interests thus an agreement would help to achieve a stage that can be mutually beneficial for both parties
• The licensee would be required to pay the inventor the royalty in any case even though the product fails in the market, the licensee would be required to do so.

Licensing Under The Indian Patent Act, 1970 

The patents in India are regulated through The Indian Patents Act 1970.  It provides that patent licensing is an act of granting authority over an invention to another person to use, sell, manufacture, or commercialize in whatever way possible. the key provisions related to licensing under the act are:

• Section 84:

It provides for the granting of compulsory licenses. It says that a person can apply for a compulsory license in case the patent has been granted for more than three years.

• Section 87:

This provides the procedure for the grant of compulsory licenses. The application is filed to the controller and if satisfied the license is granted.

• Section 92:

It says that the compulsory license can be granted in case of a national emergency for public use. The central government can put up to use a patent and grant it a compulsory license.

• Section 92 A:

It deals with compulsory licensing in the case of pharmaceutical companies. It is basically to use the public health sectors.

Documents Required For Patent Licensing

The various documents required for patent licensing are:

• Patents documents 
• Licensing Agreements 
• Intellectual Property Audit Report
•  Business Plan 
• Non-Disclosure Agreement
• Financial Statements 
• Patent Validity and Infringement Search Report 
• Technical specifications and drawings

Licensing Process

The steps for the licensing process are: 

• The first step is to identify the patent owner’s portfolio and then decide upon the patents which are to be licensed.
• The next step is discovering the people who are interested in getting a license. The potential people are judged based on their capabilities, market presence, and availability of the technology. 
• When the licensee has been finalized an agreement has to be drafted which includes all the terms and conditions; details of the patent, royalty, length, terrority, and all important details.
• While drafting the agreement both parties hire professionals which is not compulsory but suggested so that no wrong is done with either party and the agreement as per the legal requirements.
• The agreement has been signed and the licensee starts using the product and the patent owner receives the royalty as decided earlier through the agreement.
• The patent owner supervises the actions of the licensee to ensure compliance with law and regulations and as per the agreement..

Difference Between Patent Licensing and Patent Assignment

Patent licensing is a process through which permission is given to a party to take benefits by using or selling the licensed product. In the patent assignment, the patent inventor makes the transfer of ownership to another person. The inventor is the assignor and to whom it is sold becomes the assignee. After this, the assignor does not have any kind of right on the patent in any form.

It is a legal document that makes the transferring of ownership, an agreement mutually beneficial for both parties.  The assignee has to pay a lump sum amount of money and fees and royalties as per the agreement.  The agreement has to include all the details regarding the patent, date of issuance, date of transfer, payment dues, and other financial aspects as well.

Conclusion

Patent licensing is a process through which permission is given to a party to take benefits by using or selling the licensed product. It is an important part of making the invention commercially successful. It is up to the inventor what type of licensing is best and what agreement to be negotiated for future benefits.  

Frequently Asked Questions on Patent Licensing in India

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 is compulsory licensing?

Ans3. It is the license that is provided by the owner of a patent for the use of their rights against payment either set by law or determined through some form of regulation because of public interest.

Q4. What are the types of patent licensing?

Ans4. The various types of patent licensing are exclusive, nonexclusive, and compulsory. Voluntary, cross-licensing, and sub-license. 

Q5. How much does a patent cost?   

Ans5. The cost of a patent license can vary from one situation to another. It all depends upon the process of negotiation and what agreement has been made. 

Q6. What is a patent license agreement?

Ans6. 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

Q7. How much is the royalty rate of patents?

Ans7.  The patent licensing royalty rate is the percentage of the total profit earned through the invention. It is generally in between 0.1 to 2.5 %.

Q8. Which act regulates patent licensing in India?

Ans8.  The Indian Patents Act 1970 regulates the patents in India. 

Q9. What is the patent assignment?

Ans9.  In the patent assignment, the patent inventor makes the transfer of ownership to another person. The inventor is the assignor and to whom it is sold becomes the assignee. After this, the assignor does not have any kind of right on the patent in any form.

Q10. How patent licensing is different from patent assignment?Ans10. In a patent license, the licensee needs to pay the royalty to the licensor for the entire duration of the license period. Whereas, Patent Assignment can be said to be an act of the patent owner wherein the owner transfers the exclusive rights of the patent permanently.