There is a famous quote, which says “Precaution is better than cure”, and this quote surely has its relevance in the licensing strategy of patent as well. The strategy to license should be well planned so that in future, no problems become a hurdle in the road of the success of a patentee.
Topics Covered in this article
According to WIPO, “ A patent is an exclusive right granted for an invention, which is a product or a process that provides, in general, a new way of doing something, or offers a new technical solution to a problem.” It is necessary that the technical information must be disclosed to the public in a patent application to get a patent.
It is the right granted to the property by a sovereign authority to an inventor. It gives the exclusive rights to the inventor on the patented process, design, or invention for a specified period. This is a form of incorporeal right.
ADVANTAGES OF PATENT
- Exclusive rights available since the time of early filing
Patent registration from the first step itself bestows the investors with the benefits.. As soon as the Provisional Patent Application gets filed by the applicant,he obtains the privilege of security and surety that no one else can claim the ideas similar to his invention. The request of patent of someone else on the same idea will get rejected for the filing period, i.e. 12 months in India.
- Right of exploiting his idea:-
The inventor gets the right to exploit his ideas in any way for the specified period. It gives the right to owner to utilize, sell, or even modify his invention. It also puts the restrictions on others to make profits from the same ideas without the consent of the owner. The inventor also gets the right to sue the ones who are found infringing his patent rights.The patent infringement is a criminal offense.
- ROI (Return on Investment)
The patent owner also gets the right to earn a massive amount of ROI by commercializing his invention.When there is a situation, the owner finds that his invention is not being favorable to him and therefore he wants to transfer the patented ideas to someone else, he can do it and earn a handsome amount of Return on his investments.
- To get a good market reputation
The patentee also gets the right to have a recognized market reputation and to improve his portfolio by sharing the invention publicly. This creates a good relationship with consumers as well as competitors that adds to the revenue of the owner.Patent rights enable the inventor to get a noticeable market status and improve his portfolio by uncovering the invention publicly. It then helps him in building up a good relationship with consumers and competitors that ultimately add to his revenue.
- Disclosure to Public
The patent also provides the right of public disclosure to the patent owner. This results in increasing the portfolio of the patent owner as well as also increases the funds, market value and business partners of the patentee.Public disclosure of the invention will show the specialization and good command of the inventor over the technical subject-matter. All these led to the demand of the invention among high-end investors, shareholders, business partners, and consumers.
WHAT IS MEANT BY PATENT LICENSING
Assigning the ownership of a patent by inventor to a third-party, which can give the third-party right to make, use, and sell the invention either exclusively or non-exclusively, for an agreed amount of royalties is termed as “Patent Licensing”.
Patent Licensing is a mutual agreement between inventor and a third-party, who is chosen by the patent owner to make, use, and sell his invention in the market. The licensing does not remove the ownership of the patent owner from his invention as he is the patent holder, it is just the right of patent being transferred to the other person. This transfer which results in royalty being earned by the patent holder on his invention.
It is always a better choice to license the invention to a company which is already a name in the domain of the invention of the patent holder. This better choice will make the patent fit the product/IP gap.
TYPES OF PATENT LICENSES
The patent licenses can be divided into eight types:-
In this type of patent licensing, transfer of ownership takes place by the patent holder. The patent owner then just remains with his title of patent holder. In this license type,the licensee steps into the shoes of the patent owner and acquires almost every responsibility he has. The licensee can do everything except licensing the patent to anyone else. This patent is exclusively licensed to the licensee and he cannot grant it to someone else.
2. Non-exclusive License
This is the type of patent license in which licenses can be granted to more than one party. All the licensees have the control over the patent and even have the right to bring the patent in the market as well.
3. Sub Licenses
In this type of the license, the licensee gets the right to further issue a license to third party to make the product(invention). The licensee further licenses to a third party who gets the benefit of creating the product.The profits sharing will be based upon the contract between the original licensee and the third party.However,in certain cases, the sub-licensing requires the consent of the licensor(inventor/patent holder) as well.
In this, an agreement is made between at least two parties where patent licenses are granted to each other. There happens the exchange of licenses between the parties. This kind of license comes into picture, when the invention requires the support of other products to make its place in the market This license provides the exchange of essential knowledge of patents between the parties and make them enhance their technological progresses.
5. Compulsory License
Article 5 of the Paris Convention for the Protection of Industrial Property, 20 March 1883, provides for compulsory licenses relative to the obligation to work. This article provides the right to take legislative steps to member countries to have the provision for the grant of compulsory licence, through which any abuse from the exercise of the exclusive rights conferred through the patent can be prohibited.
The Paris Union Convention gives the leverage to its member countries to provide for situations for the grant of compulsory licence.
Member Countries of World Trade Organization, within Trade- Related Aspects of Intellectual Property Rights (TRIPS) approved a series of provisions applicable to compulsory licenses, particularly under Article 31 of TRIPS, which says ‘Other Use Without Authorization of the Right Proprietor’.
When a government allows a third-party to produce a patented product or process without the consent of the patent owner and use the produced patented products itself is known as compulsory licensing.
Compulsory licenses are permissions given to a third-party by the Government to make, use or sell a particular patented product or use a particular patented process, without the authorization of the patent owner.Chapter XVI of the Indian Patents Act, 1970 provides the provisions regarding Compulsory License. Compulsory licenses are generally considered only in certain cases of national emergency and health crisis. Certain conditions are required to be fulfilled in case of granting a compulsory license to someone.
6. Voluntary Licensing
Voluntary licenses are an act of goodwill towards the society. Patent holders at their discretion, license other parties, the right to manufacture, import or distribute a pharmaceutical product on an exclusive or non-exclusive basis. Depending on the terms of the license, In this case,the licensee may either act entirely as an agent of the patent holder or the licensee may get the right to set the terms of sale and distribution within a prescribed market on payment of a royalty.This is also generally used in the pharmaceutical industry like compulsory licensing.
7. Carrot License
This license is given to the one who is not working in the field of the patented licensing and neither having the obligation to take a license.This license is used as a marketing tactic where the licensee gets an outlook by the patent holder about the possibilities attached with acquiring a license of his patented invention.It is just a market practice in which the patent holder convinces a prospective licensee to take a license.
8. Stick Licensing
Stick licensing is totally opposite to carrot licensing. This licensing can be used when the prospective licensee is already using the patented product or process of the patent holder and committing the infringing of the said patent.
Corporate Patent & Licensing Strategies
- Core Technologies:- These are the technologies that are the “building blocks” of all the system. These are the important forces and tactical advantages of an entity. These are the product of amalgamation of collected knowledge, technical capacities and assets that allow the entity to remain competitive in the market. These technologies are part of the core competencies of an entity that allow it to create or expand new end markets. These also provide remarkable benefits to the customers. The core technologies are hard for competitors to obtain or replicate
- Secondary Technologies:- These technologies are not the main building block or tactical advantages of an entity, however it is related to the core technologies and even important for them as well. These are the product of knowledge, technical capacities and technological assets to strengthen the core technologies. These allow the core technologies to be commercially feasible and competitive in the market.The secondary technologies allow an entity to have new end markets or expand new end markets besides those of the core technologies. The secondary technologies can be made available to the competitors as well in the market.
- Third Party Technologies:- These are the technologies that are not owned by an entity from their beginning, but acquired from the third parties either by way of purchasing or licensing of the materials, equipment, intellectual property or the other know-how related to the technology. These technologies may have a connection with the core technologies or the secondary technologies. These technologies are available on the market to competitors as well.
- Litigation vs. Negotiation:-
The effective strength of patent protection is determined by the legal system in time of uncertain arena of patent protection and weak enforcement. The legal system affects the incentives of firms to innovate and also of account possibilities of strategic licensing and litigation to stop imitation. The R&D Gets intensified with the legal system that guarantees the monopoly of the patentee. However, the legal system that induces licensing provides incentives to carry out the R&D effort while preserving the efficiency.
Litigation Strategy of licensor and licensee:
- Parties initially starts on almost equal terms;
- There is no prompt pressure on either party to agree, both the parties will present themselves in the market as per the business model and marketing strategy to gain an advantage;
- The resources required to strengthen the business model is restricted by the revenues available for re-investment and the resources available.
- The final result becomes more clear with time.
- If successful, there is a possible reward attached to it.
(f) If it is unsuccessful, there are possible consequences attached to it as well.
The license agreement the technology of licensee deserves will not easy to get until the licensee negotiates for it as one never gets the license he wants, They get the license he negotiates. So, keeping this in mind, it is important for inventors, licensing professionals and intellectual property lawyers to constantly strengthen their negotiating skills to get a good crack.
- Patent Pool and Cross- Licensing:-
Patent Pool is an agreement between two or more patent holders to pool their patents and licenses among themselves or to a third party on pre-decided terms and conditions of licensing.That is the reason when more than two companies come together with their terms and conditions to strategise a mutually beneficial agreement for cross-licensing for their patents with respect to a particular technology, then a patent pool is created.
STRATEGIES/PRECAUTIONS REQUIRED FOR DIFFERENT AGREEMENTS
- LICENSING-IN:- When a person takes the license of a patent from the patent owner, the agreement made at that point of time for the license is known as licensing-in agreement. Here, licensee negotiates for the license for the patented product or process.
WHEN A PERSON CAN TAKE THE LICENSE:- Once the product or process becomes patented, it opens the door for the licenses. The time the licensee starts approaching the patent holder, there is a need for him to take care of a certain things and mention those into the agreement.
- To get the details that whether the technology, product or process he is looking to take license for is in the public domain or not.
- If it is yet to come in the public domain, then the expiration date of the patent;
- Is there any non-payment of maintenance fee?
- Is there invalidation of the patent in a court proceedings?
- Is there a chance that someone can bring an infringement suit against the patent holder for damages?
- Find the value of the technology, the patented one by comparing it with other technologies.
There are many more strategies and precautions which can be followed besides the above-mentioned strategies and precautions. These are the essential ones to have in the agreement, so that the licensee do not face the problem later after taking the license.
- LICENSING OUT:– When a patent holder gives his exclusive rights of patent to someone else, then an agreement is made for this said purpose, which is known as Licensing-out agreement. Here patent holder searches for a licensee to give his rights over patented product or process to someone else.
The Licensing-in agreement is on behalf of the licensee, whereas the Licensing-out agreement is on behalf of the patent holder.
The strategies/precautions which patent holder should take in licensing-out agreement are :-
- Who could be the prospective licensees?
- Worth of the patented technology in the market for preparing an attractive offer;
- Whether your patented technology amounts to the core technology in the business of the licensor, which if licensed out, might become an obstacle to continue to practice in this field?
These are a few strategies and precautions to be taken care of in doing Licensing-out agreement. The more the patent holder is assured about the patented technology, its effect in his business and the royalty attached to it, it becomes easy for him to make a perfect agreement benefiting him.
- CROSS LICENSING:- When at least two persons make an agreement for exchanging their patented technologies for the benefit of their business, that is termed as Cross Licensing. This agreement gives the companies the freedom to operate the patented technologies of each other without violating the patent rights of other parties
Before making a cross licensing agreement, there are a few points to be followed to make an agreement mutually beneficial for both:-
- Will this exchange of the patented technologies result in the growth of the business?
- How much hike of profits can be expected from this exchange of patented technology;
- Will the sharing the profits out of the combined effect of the technologies of the companies cost less than the cost of developing the technology required for the party?
- Is the other party having a valid patent right over the product or technology?
- Is the technology in the public domain, if not, what is the expiration date of the patent of the other party?
There are many other points which need to be taken care of, before making cross licensing agreement.
- Mergers and Acquisitions(M&A):- This agreement takes place when a company wishes to acquire a specific technology along with other complimentary assets of another company.
The company if wanting to acquire a specific technology along with other complimentary assets, there are certain strategies/precautions, it must follow:-
- To find out the best strategy to obtain the specific technology it is looking for?
- What are the complimentary assets attached to that specific technology, are they really worthy of being attached with the technology?
- What is the cost of the specified technology it is looking for.
- The company which is providing the specified technology is giving the fair and best deal for that?
These are a few strategies which the company looking for merger and acquisitions should follow in doing the agreement related to M&A.
Patent Licensing needs the constant strategy and precautions so that in doing the agreements for the licensing of patent, each party remains aware about the benefits they are getting of. Getting a patent for his innovation is an important achievement for the patentee, as finally after a lot of efforts, he got the reward of it in form of patents. So, before licensing its hard-earned patented product or process, he should be relaxed in terms of the benefits he is getting out of it. In the same way, the licensee should also know the worth of the patented products or process in his business before investing a huge sum of money on it. So, patent licensing should be taken place with full strategy and precautions.