Patent Licensing and Assignment Overview

A patent license can be an exclusive license or a nonexclusive license.  Other forms of license agreements include oral licenses, label licenses, electronic licenses, implied licenses, compulsory licenses in foreign countries, licenses which arise by the sale of a patented or unpatented article, or license by estoppel.

An exclusive license prevents the licensor from entering into a similar agreement with another party or asserting the right to use the patent on its own behalf unless the licensor has specifically reserved the right to do so.  If the licensor retains the right to practice the licensed subject matter, such licenses are often referred to as a “sole license.”

The granting of an exclusive license may also involve certain other terms and conditions, such as the ability of the licensor to obtain a higher royalty  than for a nonexclusive license.  This recognizes the fact that, unless the licensor has obtained a sole license, the licensee will be the sole source of revenue under the patent.  Typically, a best efforts clause is often found in exclusive license agreements so as to make certain that the licensee exercises its best efforts to commercialize the invention.

A nonexclusive license typically allows the licensee to practice the invention or authorize others to do so on behalf of the licensee.  It is normally not transferable by assignment to any other party.  As a general rule, the nonexclusive licensee does not have the right to sue for infringement whereas if an exclusive license is granted to the licensee, this would typically be permitted, as provided for in the agreement.

A label license is a license which can be granted under either patented or unpatented products.  These label licenses typically require labeling of the patent number on patent products.  For unpatented products used in a patented process, the label indicates that the process for use of the product as claimed in an identified patent.

An oral license may be void or unenforceable if it violates the Statute of Fraud provisions of the jurisdiction in which the contract is made.  Electronic licenses are a type of contract which appears on a computer screen and invites acceptance by clicking on the acceptance symbol on the computer screen.

Nonexclusive licenses may permit the licensor to grant further licenses and a nonexclusive license is normally considered as being a mere agreement by licensor not to sue the licensee for infringement in exchange for a lower royalty than would otherwise be obtainable under an exclusive license.  Generally, the nonexclusive licensee does not have the right to sue for infringement and cannot assign its right to others without written permission from the licensor.

A cross-license normally results where, for example, both parties of a prospective license agreement have patent rights which the other party wishes to acquire.  Thus, each party may operate without being charged with infringement of the patent rights of the other. Depending upon the value of the patents rights involved, an agreement of this type may be concluded by exchange of a license and a cross-license may, if needed, be accompanied by payment of royalties.   Cross-licenses frequently arise for the purpose of unblocking technology of each party so that each can produce the same without the threat of litigation.

Assignment

An assignment is as a transfer of the whole intellectual property owned by the assignor.  The distinction between a license and an assignment is relevant to taxation and in for standing to sue for infringement.

As a general rule, payments made for an assignment of a patent must be capitalized by the assignee and may be taxed as capital gains to the assignor. In contrast, royalties paid under a license are deductible business expenses of the licensee and comprise ordinary income for the licensor.

In summary, a patent right may be transferred by assignment or license, an assignment comprises a transfer of the right to exclude others from making, using or selling, and a license comprises a waiver of that right.  The patent holder should select a particular form of a contract or license agreement as part of an overall patent licensing strategy .