POINTS TO KEEP IN MIND WHILE DRAFTING A PATENT LICENSING AGREEMENT

POINTS TO KEEP IN MIND WHILE DRAFTING A PATENT LICENSING AGREEMENT

INTRODUCTION: PATENT LICENSING

Patent licensing is an act or process of assigning the ownership over the patent to a third party with the help of a mutually settled agreement. The licensee has the right to use, sell, either exclusively or non - exclusively and to reap benefits out of it. The patentee enjoys the benefits out of his patent in the form of pre – decided royalties.


Patent Licensing is a way to promote inventors, their interests and encourage them to come up with furhter inventions in future. It is a way of incentivizing the inventors for their time, effort, intellect and wealth they have spent to come up with the invention.

 

DRAFTING A PATENT LICENSING AGREEMENT

 

Drafting plays an important role while making any kind of agreement, when it comes to patent, it becomes even more essential. It is the drafting which sets the scope of a patent, its fate to a large extent.

Licensing agreements must be drafted carefully, with a prior deep research and deep understanding of the market, invention and statutory provisions of the concerned jurisdiction.

 

➢ POINTS TO KEEP IN MIND WHILE DRAFTING A PATENT LICENSING AGREEMENT 

Drafting a patent licensing agreement is planned process and has to be executed in a sequential well – sketched manner.

Following are some points to be kept in mind by the drafter of such agreements :-

Concerns of Licensors and Licensees. - 

A licensee always seeks protection for the consumers or end users of licensee’s technology. While a licensor is always afraid of the exhaustion of the terms of the license by end users. It would be a good practice to include a provision by the licensee that specifically grant a narrow license to the end consumers strictly limiting the licensed product or technology to their own use.

Licensors should also take care while drafting that the concerned provisions should strictly limit the license to the acts of using, supplying or jointly developing the licensed subject matter.

▪ Liability for past damages. - 

Any explicit license grant can protect the consumers, users, business partners and suppliers from a future damage but it cannot save them from the damage caused in past. To overcome this difficulty drafters should include a ‘release’ clause potentially releasing consumers, users, business partner and suppliers of all liability that could possibly arise by the engagement with the licensed technology. 

A licensor always pays great attention to such clause, so as he/she doesn’t release inadvertently the potential parties from their liabilities. 

 

▪ Limiting the scope of license – 

As mentioned already, it is the draft which sets out the fate and scope of a patent. Care must be taken while demarcating the scope of the patent, as to who the patentee sees as the potential licensees, the kind of rights and interests he/she wishes to assign, and the license should clearly state any claims or inventions which are to be kept out of the purview of present agreement.

 

DISPUTE RESOLUTION AND INDEMNITY CLAUSES – 

Both the licensor and license must sit and analyse the kind of disputes which could arise in future dealing. It is the duty of the drafter to first analyse the possible disputes and accordingly insert the provisions which would guide the parties to the suitable forum in such scenario. Choosing the appropriate authority plays a vital role in the course of business. 

 

Similarly the importance of indemnity clause is that it will shift the risk of licensor or licensee from a third party claim.

▪ Choice of forum for dispute resolution – 

Parties to the agreement are free to choose their choice of forum, parties can choose arbitration or litigationas per their convenience. However, in the scenario of any dispute the courts of law can determine, if the parties are entitles to the choice of their recourse or not. Also, the parties are not entitled to choose such a court, if they opts for litigation, which lies outside to the jurisdiction of which they are entitled to.

Parties must understand and consult their drafters about the pros and cons of arbitration and litigation. Arbitration is a time saving and cost effective method while litigation provides more authentic, binding and viable outcomes.

 

▪ Indemnity clause – 

The licensor and the licensee always seeks to narrow down the indemnity clause so as to release from liabilities arising out of third party interests, while a consumer seeks to broaden this clause as much as possible to claim every other liability out of the whole product whether arising out of the licensed technology or not. 

DEALING PROVISIONS TO INCREASE THE MARKET SHARE AND MAXIMIZE THE PROFIT

 These are the provisions specifically related to get the benefits out of the licensing agreement. The quantum of benefits depends largely on the term for which the agreement is made and alsolicensing through distributed agreements.

▪ Term of licensing agreement – 

It is the duration of agreement between the licensor and the licensee and the ability to terminate the agreement by either side. Agreements with shorter term generally have difficult exit clauses while the agreements with longer term have easy exit clause.

▪ Licensing through distributed agreements – The licensor through distributed agreements can restrict distribution channels through a series of contracts. Before including the said provision the licensor must analyse the potential which will be left open to the consumers to opt for the competing products or technologies as a result of restriction on distribution channels.

 

CONCLUSION

Drafting a patent licensing agreement requires a prior consideration of a number of factors. These agreements has the potential of limiting the competition, shifting the liabilities, maximizing the profits, etc.

If drafted with proper care and caution, it could save the parties concerned not only from future disputes but also to exercise their respective rights and interests to full potential.

 

WRITTEN BY:

RAHUL


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