Patents are monopoly rights and intangible by nature. Section 48 of the Indian patents act, 1970 deals exclusively with the rights of patentees which prevents the third parties, who do not have the consent of the patentee, from the act of making, using, offering for sale, selling or importing for those purposes the patented product in India. Similarly, the act also prevents the third parties, who do not have the consent of the patentee, from the act of using that patented process, and from the act of using, offering for sale, selling or importing for those purposes the product obtained directly by that patented process in India.
In certain cases the patentee may not have enough resources, business acumen or technical know-how for carrying out one’s invention. In such cases licensing offers the patentee to authorize the person whom the license has been given to exercise the patent rights under certain circumstances. Licensing is considered as a lucrative way of raising finances. The person granting the license is referred to as the licensor and the person acquiring the license is referred to as licensee. Licensing is also referred to as technology transfer. The terms and conditions for licensing may be followed as laid in the licensing agreement which should take into account the interest of both the parties. To put it simple the merchandise sellers are given the license by the patentee to use one’s brand.
The advantage of a license:
- A doormat project may be converted into a revenue generating product.
- Most of the licensee’s believe that it is more beneficial to have a license than to own a patent as they enjoy full commercial advantage of the patent.
- An already generated product is available without an upfront investment.
- Numerous distribution channels are available thus the targeted consumers are huge in number.
- Enhanced product pipelines.
- With more the licensee the better the competition.
The disadvantage of a license:
- In case of an exclusive license the patent owner tends to lose the hold on one’s invention.
- The chances of making the licensee a competitor are manifold.
- As the product is sold under the licensee’s brand name, dilution of quality could be a major issue.
- Sharing may also lead to conflict of interest between the licensee and the licensor.
- Licensing is accompanied by uncertainty as it involves two or more parties.
Licensing may be broadly classified as exclusive, and non-exclusive. We will be dealing with compulsory licensing as a separate segment in our next series.
Exclusive licensing literally puts the licensee in the shoes of the patent owner. The licensee is entitled to exclude all other persons inclusive of the patentee from the right to use the invention. Upon grant of the exclusive license even the patentee cannot sell the goods in the territory where the licensee has acquired exclusive license.
Non-exclusive license gives the same right to more than one licensee. This implies that one licensee may exploit the invention but along with him others who have been given the license for the same product may be eligible for equal exploitation.
Sole license is a type of exclusive license where the licensor agrees not to share the license with other licensees but would retain the right to make use of the patent. In simple terms the licensor is entitled to compete with the licensee.
Express license: as the name suggests an express license is the one made in expressed terms i.e. the conditions and terms are explicitly stated in a document. An express license is not valid until it is put in a written format accompanied by an application for obtaining it is filed with the controller.
Implied License: The licensing for such inventions is implied from the circumstances. It is an unwritten license. Every patented article is accompanied by an implied license. In case an express license is in force an implied license cannot be cited as a right.
Territorial jurisdiction also forma an important part of the licensing as the territorial jurisdiction decides the geographical limits under which the licensee can exploit the patents.
A license always involves remuneration referred to as royalty which is paid by the licensee to the licensor for having used the invention. Royalty is also sometimes referred to as a profit percentage. The royalty may be paid at once, may be a fixed amount paid at regular intervals or may be calculated as per the services and paid for certain activities of the licensee.
The term of licensing followed by the termination stands an important aspect in licensing. Not only the agreement should have the time period when the license is active but also post termination contract too. License may be granted not just for granted patents, but also to patented application.
Licensing literally introduces an invention to the markets. Naïve inventors are at benefit when it comes to licensing as their product gets an economic cushion. IP due diligence is essential for both the parties to engage in licensing. Licensing is a most lucrative way of earning in modern day intellectual property scenario and is a considered as a vital component for a business strategy and economic development.