IN this 43rd instalment, we canvass essentials of voluntary licensing and assignment of patent rights.
Contextualising market realities
The patentee may not always be able to personally work their inventions.
In which case they may opt to either license or assign their inventions to third parties in exchange for remuneration.
By so doing, not only do they access as wide a market as is conceivably possible, but are relieved of the task of engaging in further creative endeavours and activities.
This is normally the practice preferred by research and development (R&D) institutions as well as institutions of higher learning such as renowned universities.
Broadly speaking, licensing is regarded as permission granted on third parties by the patentee, to work or practise the patented invention, with respect to all or some of the patentee’s exclusive rights of exploitation, over a mutually agreed period of time, on stipulated terms and conditions, in exchange for remuneration in the form of royalties, and under a guarantee of immunity from infringement suits as a result thereof.
There are three categories of licensing arrangements open to the patentee, each of which carries its own unique requirements and inherent implications, namely; voluntary licences, licences of right and compulsory licences.
In each of these contexts, five fundamental aspects of licensing must be mastered and appreciated, namely; that licensing only occurs where one of the parties owns intellectual property rights (IPRs); there are various technology issues over which licensing may be agreed upon; licensing occurs in the context of a business relationship wherein other contractual arrangements are not very important; parties to IPRs licensing negotiations have different interests which by all means necessary must coincide in some way; and IPRs licensing entails reaching agreement on a plethora of complex issues.
Voluntary licensing is where the patentee (licensor) voluntarily gives permission to third parties (licencees) to exercise one or more of their monopolistic rights on terms and conditions individually negotiated and agreed to among themselves.
This arrangement is perceived to thrive on the principle of freedom of contract, whereupon the parties are at liberty to determine the nature and scope of their obligations and derivative benefits.
It follows then that a voluntary patent licence can constitute but just a part of some overall wider agreement between the parties.
In mind are instances where the patentee licenses out the patented invention together with the associated know-how or confidential information (trade secrets) pertaining to its cutting-edge market advantage.
It may also provide the grant of cross-licences to the licensor of future improvements made by the licencee, and conversely, grant the licencee future improvements made by the patentee on the same invention.
It may also address issues of collaborative research and development or consultancy.
Accordingly, it is instructive from a practical perspective to examine whether the licensing agreement in spirit fully captures the shared visions and intentions of the parties in two major respects hereunder canvassed.
Adequacy of expression
The question in this regard is; “Is the licensing agreement intrinsically legal to capture the parties’ mutual intentions and aspirations?”
In respect thereto, it is emphasised that the agreement must adequately address fundamental matters as well as contentious issues that may arise during the lifespan of the licence.
This is crucial as the licence agreement can fail for uncertainty, just like any other form of contractual agreement. In this pursuit, addressing the adequacy, hence validity of the following, but not exclusive provisions, would be a helpful guide:
- Possible termination of licence on good cause shown and upon notice arising from unforeseen eventualities during the currency of the licence;
- Parties’ rights on termination. This is very important where the licence covers trade secrets.
- Accounting of data as regards financial statements and verification thereof;
- Minimum royalties payable and mode of payment;
- Responsibilities of the parties with respect to renewal or maintenance fees
- Responsibilities of the parties as regards prosecution of patent infringements
- Quality control, marking and product liability;
- Applicable law or jurisdiction and mode of dispute settlement.
Though it is not statutorily obligatory to reduce a voluntary licence into writing or have it registered, it is very prudent to so do as later registered patent licences over the same invention would take precedence and confer better rights on their holder at the expense of the earlier unregistered licensing agreement.
As a precautionary measure in order to safeguard against public disclosure of confidential information, the licence grant may be split into two, namely; a formal one which does not make cross-reference to the confidential terms and conditions of the licensing agreement (the one to be registered) and a comprehensive one (not registered).
Legal validity of contents In recent years the law has shown an increasing distaste to licensing fetters which inequitably restrain the licencee’s activities or alternatively are contrary to public interests such as anti-trust practices.
Towards this end, most jurisdictions have found it absolutely necessary to intervene by outlawing or mitigating certain unpalatable or repugnant restrictive or anti-trust commercial practices, among others, that:
- A licensor is precluded from benefiting from continued royalties payment after the lapse or expiration of the period of patent protection. Accordingly, the licensing agreement automatically terminates and obligations cease upon lapse or expiration thereof.
- Unless parties have agreed otherwise, a licence for the making of a patented article carries with it the implied inalienable right to use, dispose of, offer to dispose of or to import the patented articles;
- Inasmuch as a licence to use or exercise the patented process carries with it the right to make, use or dispose of or offer to dispose of the patented articles any conditions or restrictions that prohibit the licencee in dealing with similar products or processes to those of the licensor, whether patented or not, are null and void, hence of no force or effect;
- Equally null and void are conditions that prohibit or restrict the licencee from using any article or process other than those protected under the licensor’s patents;
- The conditions that require the licencee to acquire any other articles not protected by the patent from the licensor are also null and void, and
- Conditions prohibiting or restricting the licencee from working the invention in any country wherein the invention is not protected are equally null and void.
Assignment The patent holder may opt to assign their patented inventions instead of licensing them to third parties. Assignment involves the transfer of all the rights in the invention to the assignee.
In which transaction thereof, the assignor (patent holder) divests themselves entirely of their rights in the patented invention and vests these in the assignee, that is devolution or transfer of ownership in totality.
In this sense, reference to successive assignments is, of course, perfectly possible, without any fetters from the patentee.
However, unlike voluntary licences, to be validly executed, a patent assignment must be in writing and signed by both parties or by representation on their behalf. Further, it must be registered with the Registrar of the Intellectual Property Office lest it be void for lack of requisite statutory formalities.
- Pasipanodya is an IP consultant who writes in his own capacity. Feedback on: mobile +263 775053007, or e-mail:email@example.com.