Got a Patent, Now What?

After applying for a patent, inventors
frequently find themselves in a position
where they lack the resources to develop
and market their inventions. Others with
the necessary capital and resources sometimes
approach inventors to offer funding
to license patents and technology (at
times before an actual patent is granted).
The inventor, theoretically, will then receive
a share of sales profits as defined in the
license agreement. Such arrangements may
be beneficial to all parties.
 
Problems may arise, however, because
the inventor:
  • Lacks the sophistication to evaluate
    the license agreement
  • Is anxious to exploit the new invention
    and start enjoying some of the economic
    benefits or proceeds and therefore may
    not pay as close attention to the provisions
    of the license agreement as advisable
  • May be in an unequal bargaining position
    with the potential licensee
Often licensees offer “up-front” money,
as an added inducement, but the license
agreement may be so one-sided that the inventor
later regrets entering into the licensing
agreement.
 
An optimistic, sometimes naive, inventor,
offered substantial advance royalties, may
assume that the license agreement represents
a partnership with a licensee that believes
in the invention and its marketability.
However, the licensee may only want to keep
competitors from licensing the invention
or want to develop a similar product “around”
the patent and thereby avoid a patent infringement
suit by the inventor. The licensee may have
no intention of ever actually producing
the invention, yet may insist on an exclusive
license (i.e., prohibit others from obtaining
a license for the product), with no obligation
to actually produce and sell the invention.
 
Licensing Agreements May be the
Key to Protection
It is not unusual for the licensee's
attorney to draft the license agreement,
however the inventors may retain their own
legal representation in negotiations, or
at least have an attorney review the license
agreement, to ensure that their interests
are properly protected. Typical provisions
of license agreements may include:
  • Definitions (of what is being licensed,
    etc.)
  • Statement of rights assigned to the
    licensee
  • Warranties about ownership and status
    of patent rights
  • Actual granting of the license
  • Payments to the inventor – fixed
    amounts or percentage of net profits
  • Formula for calculating net profits,
    if necessary
  • Ownership of rights being licensed
  • Provisions for termination or cancellation
    of the license and consequences
As noted, licensees frequently want the
license to be exclusive, while it may be
more advantageous for the inventor to retain
the power to contract with others. The scope
of the license may be negotiable.
 
Cancellation Clause
It may also be possible for the inventor,
depending on the circumstances, to insist
on a clause in the agreement to allow cancellation
of the license, if certain minimum sales
and production requirements are not met.
Such a provision may be helpful in the event
the licensee does not produce and sell a
specified number of the inventions within
a set period of time. This may seem like
common sense; however, this detail is often
overlooked by trusting inventors with an
unrealistic perspective of the process.
As stated earlier, the involvement of an
experienced attorney in negotiations and/or
reviewing the agreement is advisable. It may
prevent an inventor from bargaining away
crucial rights.

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