This article studies the Corporate Patent & Licensing Strategies and its benefits. This article also discusses the precautions to be taken in the licensing strategies.
Estimated Reading Time: 10 minutes

Introduction

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. To obtain a patent, the technical information about the invention must be disclosed to the public in a patent application. This article will focus upon the licensing strategies in patents.

Rights of an Individual for his inventions

The Patents Act, 1970 covers the “Rights of an Individual for his inventions”. Section 70 of the Act provides inter-alia right to a Patentee (inventor who has received a patent of his invention), to assign his patents fully or partially to others, through writing and according to Section 68 of the Act[1].

Obtaining a patent ought not to be the last step in commercializing one’s invention. Unless they plan to hold on to the patent as an impediment for industry competitors, and there are several paths available to commercialize the patented invention or monetize the patent, one may opt any of them. The three most common methods accessible to patent owners are:

  • to manufacture and market the patented invention independently;
  • to sell the patent to another entity
  • license the patent to one or multiple entities.[2]

Corporate Patent & Licensing Strategies

  1. Core Technologies
  2. Secondary Technologies
  3. Third-Party Technologies
  4. Litigation vs. Negotiation
  5. Patent Pools & Cross-Licensing
  • Core Technologies – The technologies that are the main strengths or strategic advantages of a company or other entity. Core technologies are the result of the combination of pooled knowledge, technical capacities (i.e., research, development, manufacture) and technological assets (i.e., equipment, materials, intellectual property) that allow the company or entity to be competitive in the marketplace. The core technologies are part of the core competencies of a company that should allow a company to create and/or expand into new end markets, as well as provide a significant benefit to customers. The core technologies should also be hard for competitors to replicate or obtain.
  • Secondary Technologies – The technologies that are not the main strengths or advantages of a company or other entity, but which relate to and/or are sufficiently important to the core technologies. Secondary technologies are the result of the need for other knowledge, technical capacities, and technological assets to support the core technologies that then allow the core technologies to be commercially viable and thereby competitive in the marketplace. The secondary technologies may allow a company to create and/or expand into new end markets separate and apart from those of the core technologies. The secondary technologies may be made available on the market even to competitors. Example: If Core Technology is Structure, Operation, Manufacture of Communication Antenna Towers then the Secondary Technology: will be the Anti-corrosive Paint for the Communication Antenna Towers.
  • Third-Party Technologies – The technologies that are obtained from third parties either through purchase or licensing of the equipment, materials, intellectual property, know-how, other underlying resources that embody the technology. These technologies may relate to Core technologies or Secondary technologies. Depending on how the third-party technologies were obtained, they may already be available on the market to competitors. The Example could be if the Core Technology: is Network-based Software Search Engine Software then the Secondary Technology: will be the Operating System Software for Mobile Devices then comes the Third-Party Technology which is the Mobile Communication Hardware
  • Litigation vs. Negotiation – If we look at the Litigation aspect in the context of Market Competition:  in this case
    • Parties initially begin on relatively equal terms;
    • There will be no immediate pressure on either party to concede, and both parties will be posturing themselves in the market to gain an advantage based on the business model and marketing strategy used;
    • The amount of resources required to support the business model is only limited by the resources available and the revenues that can be reinvested into the business
  • Role of Litigation
    • Immediately threatens the opposing party into a defensive stance;
    • Depending on the court or forum has chosen, puts pressure on one or both parties to either respond or concede within a limited amount of time;
    • Potentially ties up a large number of resources (i.e., money, employee time, company equipment) for a prolonged or indefinite period away from the normal business operation; 
    • Unpredictable result;
    • Possible reward if successful Example: Monetary damages Import Exclusion Order (ITC cases only)
    • Possible consequences if unsuccessful Example: Invalidation of Intellectual Property Large Non-recoverable expenditure of resources
  • The aspect of Negotiation:
    • Parties initially begin on relatively equal terms;
    • There will be no immediate pressure on either party to concede, both parties will be posturing themselves as negotiations progress to gain an advantage;
    • The number of resources required to support the negotiations will likely be more limited, but the total time of the negotiation may stretch for a long time.
    • The final result will become more apparent as time progresses;
    • Possible reward if successful
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Example of this regard is: Monetary payment for Cross-licensing

  • Patent Pools & Cross-Licensing Patent Pools:

Patent- Pools: A consortium of at least two companies agreeing to cross-license patents relating to a particular technology. The creation of a patent pool can save patentees and licensees time and money, and, in case of blocking patents, it may also be the only reasonable method for making the invention available to the public.

Cross-Licensing-When two or more parties enter into an agreement granting a license to each other for the exploitation of the subject-matter claimed in one or more of the patents each owns. Usually, this type of agreement happens between two parties to avoid litigation or to settle an infringement dispute. Very often, the patents that each party owns and covers different essential aspects of a given commercial product. Thus, by cross-licensing, each party maintains its freedom to bring the commercial product to market. The term “cross-licensing” implies that neither party pays monetary royalties to the other party.

Precautions

While Licensing the Patent to one or multiple entities various precautions are required to be taken, both by the licensor(s) and the licensee(s) at various steps under various circumstances, these are discussed below.

Licensing-in

The primary thought to be evaluated is patentability. Claiming a patent or pending patent application is normally a condition for permitting license. Without lawful ownership rights to innovation, one does not reserve the privilege to prevent others from making, utilizing, or selling the invention.

To get a patent for one’s innovation, the creation must establish a patentable topic/subject and be novel, valuable, non-obvious & useful. Satisfying these prerequisites will likewise enable the item to turn out to be commercially & monetarily feasible. Further prerequisites include having kept the innovation secret or, in specific nations, applying for a patent inside a year from the date of the soonest open revelation.

Also, the attractiveness and marketability of the invention should be evaluated. Ideally, the product will have unique highlights that will appeal to consumers and be arranged at a segment that would be willing and able to purchase it. Inventions that are not attractive, they risk being unappealing to consumers, which would bring about low sales and therefore low profits, making them a bad investment for potential licensees.

It is key for the invention to be in some way unique and be different from similar offerings on the market to incentivize consumers to switch to or start buying the product. Regardless of whether the invention is novel, there are likely substitutes available on the market that perform the function that it is planned to satisfy. The invention, thus, must have a distinct feature, a superior cost to benefit ratio or another method of positively differentiating itself from available market alternatives.

At long last, the invention should be financially feasible. Fundamentally, income produced from selling the patented invention must surpass the licensee’s costs of producing and selling it, which includes royalties which are paid to the licensor as the patent owner. On the off chance that there is no profit for the licensee in selling the patented invention, it is unlikely that the licensor will be able to find a licensee. The net revenue is additionally liable to be a key factor in the royalty rate the licensor can negotiate.

Other components that play a less significant role in deciding whether the invention is licensable or eligible for licensing-in. Among such factors the structure of the business market of the invention (i.e., how much market share companies hold on average, and whether there are prevailing players that need to retain their advantage or smaller players that need to expand their market share) and the current interest for the need that the product satisfies. However, evaluating whether the invention is patentable, marketable, profitable will largely let one determine if there is potential for licensing.

Licensing-out (Seeking out potential licensees)

After one has determined whether his/her invention has the potential to be granted a license, he/she must seek eligible licensees who are willing to purchase the license and manufacture the invention. To do this, it is instrumental to conduct research based on the following criteria:

  1. Assessing the current market and the stakeholders within it, and seeking the following questions:
  2. Who is currently manufacturing competitive products or market alternatives?
  3. Are there any large entities looking for an avenue to enter this market?
  4. Are there existing players that want to strengthen their foothold?
  5. Assessing currently available market choices and alternatives by evaluating distribution & publications of trade associations or trade expos, library databases, professional listings, business directories, and patent databases.
  6. Advertising the patent available for sale or licensing.
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It may be helpful to make an imminent rundown with 60-70 potential targets to guarantee that, despite rejection, one will be able to secure ‘licensee(s)’. Triaging one’s list of potential targets in order of likelihood of investment. Helpful criteria of ranking the list may include geographical location, size of the organization, company strategies on entering onto new license agreements, regardless of whether the company is as of now producing similar products, and whether it is conceivable to contact the company’s decision-makers.

Cross-Licensing of Patents

A cross-licensing contract of patent between any two entities is an agreement where a grant of patent licenses to each other occurs between the two parties. Such agreements primarily include trades of crucial patented knowledge between any two parties who seek to facilitate their own technological/mechanical advances and are generally related to a particular field of use. The top players in every field, particularly the automobile, telecommunication, broadcasting, pharmaceutical industries are locked in with one another through cross-licensing contracts.

For E.g., Samsung, HTC, LG, and other telecom companies agreeing to share patents covering “Android and Google Applications” on any device which meets Compatibility Requirements of Android.

Cross licenses usually award the licensee, the right to use the patented technology only in a restricted field and for a fixed timeframe. Cross licenses often cover both ‘existing patents’ as well as those which are issued during the period of the agreement. Most cross-licenses require royalty payments and are allowed on a non-exclusive basis so that the parties retain the right to license their patents to others.

Key Benefits of Cross-Licensing

  1. Developing a superior product by way of mixing complementary technologies.
  2. Enhancing interoperability among networked products.
  3. Securing access to new markets.
  4. Cost-cutting in product development in an efficient manner.
  5. Extracting benefits from the other party’s manufacturing or marketing capabilities to shorten time-to-market.
  6. Creation of an IP sharing economy in which the unused IP assets can be monetized, hence increasing IP value.

Although, Cross licenses with provisions that may facilitate the coordination of other activities such as the setting of prices, dividing markets, or licensing to third parties, may sometimes raise antitrust concerns.[3] One of the ways to escape such anti-trust issues is avoiding extensive public disclosure of co-operation between competitors.

A cross-licensing regime sometimes also tends to inflict a barrier to entry if existing relationships make it harder for “new firms to come in and overcome the patent thicket.”[4] Also, Licensing royalties add a layer of expense to the product and can reduce the net profit margins within IP value. Sometimes, a company could become dependent on another party’s skills and abilities, especially if the license is exclusive.

Therefore, for these reasons, it is in general considered unwise for a company to include its core, business-critical technology patents in cross-licensing agreements. Hence, it is also possible to introduce clauses that limit the direct competition between the two cross-licensing partners. For example, “in the Microsoft-Apple agreement, there are anti-cloning provisions to protect against verbatim copying of products. Moreover, Cross-patents are likewise dependent upon administrative investigation to guarantee that they do not unjustifiably lessen rivalry or subvert impetuses to innovate. Cross-patents that comprise primarily substitute (i.e., directly competing) patents have a more noteworthy potential to smother rivalry, while those of reciprocal utility and configuration patents are viewed as bound to expand efficiencies and advantage customers.

Hence, when done shrewdly and deliberately, everybody benefits from the cross-licensing of technology patents. The companies themselves, the business, and consumers. It is vital, in any case, for anti-trust, anti-collusion regulators, and other patent litigation bodies to keep a watchful eye on the larger and broader cross-licensing agreements to ensure that healthy competition is upheld.

Conclusion

Licensing is a procedure through which the inventor gives authorization to a manufacturing entity (be it a company or an individual) permitting them to extract the benefit out of the licensed product. There could be strategies one could adopt while making such licensing agreements other than discussed above like locatingthe manufacturers. A licensor should conduct research and identify manufacturers who operate under relatively similar technology to find a potential licensee[5]  and must ensure the that he licenses out the patented product to a manufacturer who innovates the technology of products being manufactured who as well incentivizes on improvising the technology.


[1] The Patents Act,190 S.68 –Assignments, etc., not to be valid unless in writing and duly executed

[2] Christopher Heer, Daryna Kutsyna, ‘Licensing Your Patent: Steps and Strategies’

[3] John H. Barton, Patents and Antitrust: A Rethinking in Light of Patent Breadth and Sequential Innovation, 65 Antitrust L.J. 449, 464 (1997)

[4] A Patent System for Both Diffusion and Exclusion, J. Econ. Persp., Winter 1991, at 43, 47 n.4

[5] Patent Licensing and its Types: Everything you need to know at https://www.greyb.com/patent-licensing-101/

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