Licensing intellectual property (IP) comes up in a number of contexts. You may be licensing your technology to another company. Or on the flip side, you may be licensing technology from someone else for your use. In some cases, you are looking at a license already in place – such as when investing in a company. While the financial terms of the license certainly are a key element, there are other considerations from an IP perspective that shape the tenor of the arrangement.
Terms that matter from a patent perspective
Exclusive versus non-exclusive dictates who can use the technology. An exclusive arrangement generally means that the licensee (the one taking the license) is the only party to use the technology. Exclusivity is tantamount to a promise that the licensor (the one offering the license, e.g., the owner of the IP) will not license the technology to another party going forward. This promise may be tempered by a field of use, territory or term restriction (see below). In some cases, the licensor may reserve rights to use the technology for itself. For example, it is not uncommon for the licensor to reserve rights to use its patented technology in a non-commercial manner, such as for future research.
Why does it matter? As a licensee, a non-exclusive license means that you will not necessarily be the only one with rights to the IP. Other companies, including your competitors, could get access to the same technology. In some cases, for background technology, this may be an acceptable arrangement. In other cases, a non-exclusive license may be the only flavor on offer (or the only option you can reasonably afford). From the licensor’s perspective, non-exclusive licenses provide a path to grant licenses to a larger number of entities and thereby maximize the value returned through royalties and fees.
An exclusive license offers key perks. In addition to the competitive advantage of being the only one with rights to the technology, exclusivity impacts your available options when someone else, like your competitor, infringes the patent. In the US, only patent owners and exclusive licensees can bring a patent infringement lawsuit and seek damages. A non-exclusive license does not provide either of these rights, and sales lost to patent infringement can be difficult, if not impossible, to recoup.
Field of use refers to the scope for which the licensed technology can be used by the licensee. In the broadest options, a license may not be limited at all, and you can use the licensed technology for anything of interest. In some instances, a license may differentiate between uses allowed for research versus those available to use for commercial products.
Fields of use can also constrain the license to specific applications, for example, use of a drug in specified disease treatments or use of the technology only to develop or sell products listed in the license.
Why does it matter? Research versus commercial rights can be key if the licensed technology is going to end up in your commercial product. Dividing a license by fields, such as different diseases or product types (e.g., therapeutic, food use, industrial production) can help delineate between the boundaries of multiple parties with access to the technology. If you are the one granting licenses, field of use licenses can provide a mechanism for granting non-overlapping exclusive licenses to multiple entities, thereby increasing your revenue potential from royalties or other licensing fees.
Territory impacts where you can make, use, sell, offer to sell and import the products and processes incorporating the IP. Keep in mind that territory is also driven by where the patents are filed and issued. Patents are country-specific, so a patent filed only in France doesn’t cover rights to use the technology in the US. In the broadest scope, a worldwide license will offer rights in all countries where the licensor holds a patent. It is not unusual, however, for licensors to carve up the rights by country, licensing for example, US rights to one party and rights outside the US to another company. For distribution, a licensor may divide the rights even more finely (such as by carving out different geographic territories within a country).
Why does it matter? The territory of the license should match your planned activities. For example, if you are going to manufacture in Germany and then sell throughout the EU as well as import and sell in the US, you will want at least the right to make in Germany, the rights to sell and offer to sell in the EU and the rights to import, offer to sell and sell in the US. You may also need the right to use the technology in all of the locations.
Term of the license refers to how long the license will remain active. A common mechanism is to have the license expire when the last of the licensed patents expires, unless the agreement is terminated under other available provisions. The relevance of term will depend on your anticipated use of the technology. Is it something of need for a limited time? Or is this a technology that you will use as long as it is available?
Why does it matter? Patents generally have a 20-year lifespan. When the patent expires, the rights associated with it expire too. Licenses can include more than one patent, as well as patent families, such that the life of the license continues until all of the patents have expired. This life span may influence the span of time in which royalties are paid. Many licenses also include non-patented rights such as “know-how.” In this manner, when the patents expire, the license may continue based on the licensee’s continued access to and use of the know-how.
These are just some of the basics. Licenses, particularly for exchanges of patented technology, are circumstance-dependent and many other considerations can come into play. Asking key questions up front about who, how, when and where the technology will be used can help shape the features of the license to fit its purpose.
This article is for general information purposes and is not intended to be and should not be taken as legal advice. Circumstances are fact-specific and you should consult an attorney for legal advice concerning your individual issues.