Licensing of Intellectual Property

On one hand, your invention would be a product in the future. By the time your patent application is disclosed and under examination, your competitors will decide around your invention and come up with similar but not identical invention. Therefore, waiting for your invention to be developed into a future product may lose its novelty and value.

Also, inventions may have short-lived usefulness. By the time a patent application is issued, the technology may have taken a different direction, making the invention obsolete.

One the other hand, if implementation of your invention infringes another patent, you are facing a possible expensive litigation process.

In many cases, patent licensing would be a low-cost option, even though the amount of royalty for the license might be significant.

“It is conceded that a bare license (non-exclusive license) to practice a patented invention gives the licensee no right to join as plaintiff in suit against an infringer.” (Western Electric Co., Inc v. Patent Reproducer Corporation (1930)).

A non-exclusive license grants to the licensee merely a privilege that protects him from a claim of infringement by the owner of the patent monopoly. He has no property interest in the patent, nor any contract with the patent owner that others shall not practice the invention.

The patent owner may freely license other, or many tolerate infringers, and in either case no right of the patent licensee is violated. Practice of the invention by others may indeed cause him pecuniary loss, but it does him no legal injury.

“Such exclusive licenses frequently contain express covenants by the patent owner and licensor to sue infringers, that expressly cast upon the former the affirmative duty of initiating and bearing the expense of the litigation. Without such express covenants, the implied obligation of the licensor to allow the use of this name is indispensable to the enjoyment by the licensee of the monopoly which by personal contract the licensor has given.” (Independent Wireless Co. v. Radio Corp. (1926))

A license to practice the invention may be accompanied by the patent owner’s promise that others shall be excluded from practicing it within the field of use wherein the licensee is given leave.

An exclusive licensee is obviously prejudiced by an infringement of the patent. Therefore the licensee must have the right to compel the patent owner to assert his monopoly for the benefit of his licensee. That is, the licensee must have the right of joinder in suit restrain infringement, or of suing in the patentee’s name if the patentee refuses to join in the litigation.

An express contract is not always necessary to establish a licensor / licensee relationship. Court will imply a license if the terms of documents, letters between the parties, a course of conduct, or any combination of these indicate that the parties intended to create a license.

“Like any other implied contract, an implied license arises out of the objective conduct of the parties, which is a reasonable man would regard as indicating that an agreement has been reached.” (Medeco Security Locks, Inc. v. Lock Technology Corp.(1976))

To show an implied license, the courts have evaluated any combination of these the criteria: patent exhaustion; infringement estoppel; and the non-infringing use test.

Under patent exhaustion theory, the purchaser of a product acquires an implied license to patent claims that cover the product and may also acquire an implied license to incident patent claims.

Courts have applied infringement estoppel to establish an implied license to patent claims when the purchaser successfully proves reliance on the actions of patent owner.

More recently, courts have applied a kind of non-infringing use test when no patent claims over the product, but the purchaser seeks to acquire an implied license to incident claims.