India: Patent Licensing

Last Updated: 15 May 2019
Article by Sonal Sodhani

What is a patent?

An exclusive right granted for an invention, which is either a product or a process, and offers a new way of doing a work or provides with a new technical solution to an existing problem, is called a patent.1

What is called Patent Licensing?

Patent Licensing is an act of or a process of granting, to a third party, permissions to extricate benefits by selling and using the licensed product. The patent owner gives license to a third person to use, sell and extract benefits from his patented invention, for an amount already decided as royalty.

A patent owner can give away or transfer his interests in a patent to a third person. The licensor gives away his rights on the invented patented intellectual property for a period of time over a mutual agreement. During such a period, the licensee can extract benefits and have rights on the interest on the patent. He may use and make the licensed design and can also gain profits during the licensed period.

As per Section 68 of the Patent Act, 1970, for a patent license to be valid, the agreement must be in writing. In the case of PVR Pictures Ltd. v. Studio 18 [2009 SCC OnLine Del 1878 : (2009) 41 PTC 70]. Delhi HC held that term sheet agreement shall not amount to a license agreement.

What are the types of Patent License?

There are following five types of patent licensing:2

Exclusive License

An exclusive license is one in which all the rights of the patent is transferred to the licensee, but the title. In such case, the licensee has all the rights as of the patent owner except of transferring the patent to another person. This restriction is because, in such license even with transfer of all other rights the right over the title still rests with the patent owner. It is exclusively granted to a particular party and hence cannot be further transferred. In this type of license, the chances of the patent getting infringed is minimal as the rights are less being exploited and the licensee has the monopoly over the market.

Non-exclusive License

In a non-exclusive right, the licensee has the right to sell and make the patented design, but such right is not exclusive. Patent owner may grant permission to use and make such patented design to any other person also. In this case, all of them have the right to make, use and sell the patented design. The rights enshrined by this license is not exclusive to a particular licensee.

Sub-license

It is a type if license issued by the licensee to different organizations to make the products. Sublicense can be said to be granting of certain licensed rights on a product to a third party by the licensee.

Cross License

When a product requires support of some other product to make its place in the market and for better utilization, cross license is preferred. Cross license can be understood as exchange of license between different organizations and individuals. Recently, Ericsson and Oppo entered into a cross license agreement between them covering various patent portfolios of both the companies including portfolios of 2G, 3G and 4G.

Compulsory License

When the government grants permission to any individuals or organizations to use, sell or make a patented design or product, irrespective of the will of the patent owner, for the public good, it is referred to as compulsory license. Compulsory license is usually seen being granted in the pharmaceutical products and the products which fulfils the criteria as mentioned in Section 84 of the Patents Act, 1970. The first compulsory license, in India, was given to Natco Pharma Ltd. for producing generic version of Nexavar which was a patented medicine of Bayer Corporation, on March 9, 2012.

What are the advantages of patent licensing?

Transfer of risks

Manufacturing and production of a design or products have a lot many risks involved. With patent licensing the patent owner can transfer such risks involved in production of patent design or product to the licensee.

Global Market

It becomes difficult for many companies to have a mass production of a product individually. Patent licensing comes to an aid to overcome this difficulty as it permits other organizations to produce the patent products and thereby help in mass production. Patent licensing thus can help in introducing ones invention in the global market.

Limited Period

Because patent licensing is done for a limited period, the owner gets back his exclusive rights over his invention as and when the license duration expires.

Competitive Advantage

If the patent is licensed to an already established organisation with a large customer base, the patent product will have a larger market to capture in comparison to other patents, giving it a competitive edge over other patents.

What are the disadvantages of patent licensing?

Difficulty in determining licensee

It takes lots of efforts and time to determine the appropriate licensee for the invention. It is essential to get a potential licensee and have a structured agreement in order to have the greatest chances of success.

Loss of control

For the period of license, the patent owner transfers his rights to the licensee. Result of which is he loses his own control, either partially or fully, on his own invention.

Risk of licensee's ability

The patent owner relies on the efficiency and abilities of the licensee to effectively commercialize the patent product. The risk of poor strategy and quality management can adversely affect the patent reputation and success.

What is the difference between Patent License and Patent Assignment?

Patent License can be referred to be an act of the patent owner where he grants permission to extract benefits on interests on the patent to a third party for a limited period of time. Such transfer of rights are temporary in nature. In patent license, the licensee is needed 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. Such a transfer is recorded in the official patent record. In patent assignment, the assignee is required to pay the lump-sum amount to the assignor in the beginning and can later receive profits from the patented invention.

What are the common mistakes committed during patent licensing?

  1. The licensee tends to use the patented design or product before signing the license agreement resulting in patent infringement. The licensee should ensure that he has signed the license agreement before using or selling the product or design so patented.
  2. In a haste of growing rapidly, some inventors fail to find the suitable licensee for their product and end up granting license to some non-competent party. This results in failure of the invention which could have had flourished in global market had the owner opted for an efficient licensee.
  3. Lack of awareness regarding the liability of the owner also leads to loss for the licensee. The licensor is still the owner of the patented product or design, even during the license period. Thus, he can be held liable for his invention even during the license period.

What are the approaches to patent licensing?

There are two ways of approaching patent licensing:

Carrot Licensing

In this case the person or the organisation one wants to do business with is not into using of the patented technology or the product. The owner of the patent must convince the party to use his product and how licensing the product or technology be beneficial for them.

Stick Licensing

In this case the person or the organization has already used or is using the patented design, technology or product and thus, have infringed the patent. The owner can file a suit against the infringer or settle with the infringer agreeing to license his patent.

What is patent licensing royalty rate?

When an inventor license his patent to any third person, they both enter into the license agreement wherein rights of the patent is given to the licensee and in return the licensor receives a certain amount of money fixed in the agreement every time the product is sold.This fixed amount being given to the licensor or the inventor is called as royalty, and the percentage of net or gross profit decided to be the royalty is referred as patent licensing royalty rate.

Royalty rates generally vary from 0.1 to 25 percent depending on the type of industry and the invention.3

Conclusion

Recently a company in Bengaluru came up with the concept of e-scooters though the price of it is high making it inaccessible. Further, Kerela Government asked all the government transport to be e-vehicles. It can be thus suggested that, patent license should be granted for global reach of the products and those for public good should be either be compulsory licensed or free licensed.

Footnotes

[1] https://www.wipo.int/patents/en/

[2] https://www.greyb.com/patent-licensing-101/

[3] https://www.upcounsel.com/patent-licensing-royalty-rates

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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