Co-owners cannot separately license without consent

Under New Zealand law, subject to any agreement to the contrary, each co-owner of a patent:

  1. may make, use, exercise or vend the patented invention without accounting to the other co-owner(s); and
  2. may not assign or licence its rights without the consent of the other(s).

This has a number of practical implications for potential licensees and licensors of co-owned patents.

Issues for licensees to consider during due diligence

Consent from co-owner

Firstly, it is important to ensure that you obtain a valid licence by seeking confirmation that that co-owner has the consent of the other co-owner(s). If necessary, ask to see the relevant agreement or a separate document relating explicitly to the proposed deal.

What rights does the co-owner retain?

Secondly, to fully understand the degree of the exclusivity that you are obtaining you will need to understand exactly what rights the other co-owner retains. Unless there is an agreement to the contrary, the other co-owner will be entitled to use the invention in competition with you. Ask whether there is any agreement limiting the other co-owner from using or commercialising the invention. In some instances, there will be very good reasons for allowing the other co-owner to continue using the invention; for example if it is a research organisation conducting research in the relevant field. In that case, it may be better to have an agreement that allows continued use but which has appropriate constraints and ensures that some benefits flow through to you. The precise terms of this agreement will impact on the value of your licence.

Can other parties obtain licences without your knowledge or consent?

What happens if the other co-owner wants consent from your licensor to issue a licence to a third party in future? Will you, as an existing licensee, have any control over whether your licensor grants that consent? Again, ask whether there is any agreement amongst the co-owners in this regard. If no such agreement exists, make sure your licence agreement stipulates that your licensor will not grant consent to the other co-owners except with your consent.

Licensors of co-owned patents should take care with warranties

If you are a co-owner, all of the issues above are equally pertinent to you. Taking steps to address these issues before you seek licensees will greatly increase your chances of finding a suitable licensee and will avoid these issues arising unexpectedly during negotiations.

Licensors should also take special care before agreeing to warranties about their ability to enter into the licence agreement, unless consent from all co-owners has already been obtained in writing.

And finally: The value of expert legal advice

It is always prudent to have your licence drafted or reviewed by a lawyer who specialises in patent licensing in New Zealand.

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.

James and Wells is the 2009 New Zealand Law Awards winner of the Intellectual Property Law Award for excellence in client service.