Patent licensing

WIPO's licensing guide lists the rights a licensee may need, and says a license can be shaped to give some of them and not others¹:

• to use the technology, for research and product development¹;
• to make it or have it made, for manufacture by the licensee or a contractor¹;
• to distribute or sell it¹;
• to import it¹;
• and to sub-license it to another party who can do any or all of the above¹.

WIPO notes that these are sometimes referred to as patent grants (make, use or sell). It also says a license may cover only part of a single IP right, for example the right to make a product covered by a patent but not the right to have it made by others¹.

A license can also be limited in other ways. WIPO's IP Panorama module says the license may be limited to a particular geographic territory, and the licensee may be limited to a field of use, such as a class of customers or a specific industry segment². WIPO's guide adds that limiting the license grant to the patents of certain countries does not limit the territory in which the license may be exploited, so if the licensee is to be limited to a specific territory, this should be specified¹. WIPO notes that IP rights are often territorial¹. See Patent family for how one invention can be protected in several countries.

WIPO says a license could be exclusive, sole or non-exclusive². The EU Technology Transfer Guidelines define the first two for the purposes of those Guidelines, which apply EU competition law, so the table gives the EU definitions and WIPO's practical comments⁴.

WIPO's guide lists ways to limit the downsides of an exclusive license. Exclusivity may depend on the licensee reaching minimum royalty payments or product sales, may last for a shorter period than the agreement (a head start provision), or may apply only within a specified field of use¹. It also warns that exclusive licenses may be illegal, or subject to legal scrutiny, in some countries¹.

In the EU, the Guidelines treat reciprocal exclusive licensing between competitors as a form of market and customer sharing and a hardcore restriction under Article 4(1)(c) of the Technology Transfer Block Exemption Regulation (TTBER)⁴.

WIPO's guide says two types of payment are common in technology licensing: royalties and lump sum payments, which can be combined in different ways¹. The IP Panorama module says royalties are regular payments to the licensor that reflect the licensee's use of the technology, and that they are the most usual type of payment in license agreements².

Several patents can affect a single product. WIPO calls the resulting risk royalty stacking: when royalty payments to all patent owners are added together, the licensee may find itself with a non-profitable product, so licensees often insist on anti-stacking provisions that reduce the royalty rate if the licensee must take licenses from third parties². This page does not give royalty rates, because the sources describe how rates are structured and negotiated, not a standard figure. See Patent valuation for how patent value is estimated.

In the United States, 35 U.S.C. 261 also provides that an interest that constitutes an assignment, grant or conveyance is void as against a subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of the subsequent purchase or mortgage³. WIPO adds that the distinction between a license and an assignment is also important for determining who may sue for infringement and for taxation².

WIPO's IP Panorama module lists business situations in which a business would consider licensing. Among them²:

• Cross-licensing: in closely related industries where rivals use very similar technologies, cross-licensing is relied on to avoid expensive tit-for-tat litigation².
• Infringement: where IP rights are being infringed, the owner may put pressure on the infringer to take a license, for example by threatening to litigate. See Patent infringement².
• Patent pools: where several patent holders own patents relevant to a product, they may license the patents as a group. See Patent pool².
• Standards: where a license is needed to meet an industry standard, it is generally available either royalty-free or on fair, reasonable and non-discriminatory (RAND or FRAND) terms. See FRAND².

WIPO's guide also says that even aggressive assertions of IP against competitors, in most cases, end with a settlement in which the IP is licensed to the competitors¹.