Patent Licensing: A Brief Summary
In the United States, patents provide the patent owner a limited period of exclusivity on the patented subject matter defined by the allowed claims. The patent owner enjoys the right to exclude others from practicing or manufacturing the patented invention or to license the patent itself. Patent owners may wish to license a patent to quickly monetize the patent, bring the invention to the market more quickly or efficiently, or to reduce the capital required to build or implement the invention at scale. In other situations, it may be essential for collaboration between related business entities or business partners. When a patent owner licenses a patent, some of the patent owner’s rights are transferred to the licensee, but the owner ultimately retains title to the patent.
License Types: The two main categories of patent licenses are exclusive and non-exclusive licenses. Exclusive licenses transfer the ownership rights of the patent from the owner (licensor) to the licensee. The owner retains title to the patent, but the license grants the licensee the sole right to practice the invention. In this case, the owner is also restricted from practicing the invention. A non-exclusive license allows the licensee to practice the invention, but in a non-exclusive manner. In this example, the owner retains the right to practice the invention and the owner may license the invention to additional third parties. Most licenses can, and should be, limited in time. Once the licensing period ends, all rights return to the patent owner.
Benefits to Licensing: Licensing can help a patent owner monetize a patent quickly or address infringement without need for costly litigation. If the owner is unable to or is not inclined to produce the invention at scale, the owner could license the patent to an entity already in the market or with the ability to produce or implement the invention. The patent owner could collect royalties on the licensed patent while retaining title to the patent. In other examples, patent owners may license inventions as part of a corporate partnership or as necessary due to standards set by standard-setting organizations (SSOs).
Licensing Considerations: Determining appropriate licensing terms can be challenging, and even the process of approaching potential licensees can prove to be difficult. A careful use of nondisclosure agreements is often recommended to protect intellectual property rights during licensing negotiations. Most importantly, patent licensing is not one-size-fits-all. A thoughtful and individualized analysis should be performed for each patent or situation to ensure that appropriate terms are set.
Please reach out if you would like to discuss your own patent licensing strategy in more detail!