Did you know that it is not necessary for the patentee to exercise his own invention in order to benefit from the monopoly a patent provides? Licence agreements can give the right to make, use, exercise, sell or import the invention to a licensee who then pays the patentee a royalty, a once-off fee or a combination of a once-off fee and royalty fee.
Three types of voluntary licence agreements exists. A non-exclusive licence allows multiple licensees to obtain a licence to work a single patent, including the patentee. An exclusive licence gives the licensee the right to exclude anyone else from obtaining a license, and also excludes the patentee (the licensor) from working the invention. A sole licence is usually something in between the first two in that both the licensee and the patentee may exercise the invention, but the patentee guarantees not to give any other licenses to other parties.
A patent licence agreement generally needs to address issues such as payment for the right to use the patent. This may be in the form of a lumpsum payment or royalties. The benefit of a lumpsum payment is that the licensor gains a large amount of capital immediately. The benefits of a royalty agreement are that the licensor gains a small percentage of the profit over an agreed number of years, which may place the licensor in a much more profitable position than a lumpsum payment would have. Parties can also agree to a combination of a lumpsum payment up-front, with a continuing royalty over time. Which model works best would depend on the business strategy of both parties, as well as whether or not the technology has proven itself or not.
Because agreements, including a patent licence agreement, is governed by the common law, it is possible to include almost any type of provision which suit the parties. However, certain provisions are illegal. Section 90 of the Patents Act provides that certain conditions in a patent licence shall be null and void. Therefore, any condition in a licence under a patent, the effect of which is –
- to prohibit or restrict the purchaser or licensee from purchasing or using any product, whether patented or not, supplied or owned by any person other than the licensor;
- to prohibit or restrict the licensee from using any product or process which is not protected by the patent;
- to require that the licensee acquires only from the licensor any product not protected by the patent; and
- to require that the licensee must sell the patented articles at a minimum price;
shall be null and void.
There are two circumstances in which restrictive terms are allowed in a licence agreement –
- where the condition prohibits the licensee from selling any products other than the products of the patentee; and
- where the condition reserves for the licensor the right to supply new parts for the patented article.
If you need to licence your patent, or any other intellectual property, we would be happy to assist you with a tailor-made patent licence agreement which looks after your best interests. Don’t hesitate – contact us today!