Risks of Do-It-Yourself Patent Licenses

Patent license agreements are complex legal agreements. If you download a form on the internet, you risk not acquiring all of the rights you need to enforce the patent against infringers and to get the full scope of damages you might be entitled to collect. Each business relationship is different. The terms of each license agreement need to be tailored to the particular details of the relationship. Choosing to modify some template document you found online could have unintended consequences down the road. Additionally, many assignments and licenses do not include the right to recover damages for pre-existing infringement. This would require two plaintiffs – one for each period of infringement. This can be impractical as discussed in greater detail below.

Patent infringement cases can only be brought by the inventor, an assignee or an exclusive licensee holding all substantial rights in the patent. Non-exclusive licensees have no right to bring infringement claims without joining the inventor or assignee. The rights reserved to the licensor will be used to determine the nature of the license so it is critical that you craft your license agreement to achieve your desired outcome.

In one case, an exclusive licensee was able to bring an infringement action where its license agreement required it to notify the licensor but was not required get consent to bring the suit. However, in the case of an exclusive license where the licensor reserved certain rights and obligations (discussed below), the court found that the exclusive licensee must be a co-plaintiff with the licensor.

Why does it matter? This can create tension when two companies have to share decision making on legal strategy, litigation costs, and even deciding whose attorney will be lead counsel. Licensor and licensee often have different ideas and business needs. The alleged infringer can be opportunistic and exploit these issues, pitting plaintiffs against one another.

Many form license agreements contain clauses that can prevent an exclusive licensee from suing infringers without co-operation of the licensor. If you have a litigation shy licensor, or a control freak personality in the licensor, this can make patent enforcement difficult.

The rights of the licensor that may preclude licensee from suing infringers in its own name include:

  • Requirement to give consent to litigation
  • Right to develop and manufacture products
  • Right to supervise licensee’s production for quality issues
  • Obligation to pay maintenance fees
  • Obligation and right to sue infringers
  • Requirement to give consent to sublicenses and assignment to third parties

Many form license agreements are inadequate to address these issues. Most importantly, these issues are preventable with appropriate language in the relevant written agreements.

No one likes to pay attorneys fees. But the ROI is worth the investment. What you don’t know can hurt you. Don’t risk getting lesser rights than you thought you were getting. If you are the licensor, you may agree to costs and responsibilities you didn’t intend. Are you ready to invest a half million dollars in legal costs to enforce the patent, knowing the benefit and damages largely might go to the exclusive licensee? Having control sounds good, but only when you have no burden associated with it. Patent litigation is expensive and you want to carefully consider what rights and responsibilities you are undertaking. A formulaic agreement is unlikely to benefit you on these case-specific issues.

Many firms, like ours, are willing to work with clients to have them negotiate key parts of a licensing arrangement  with legal guidance from the sidelines to reduce legal costs, and use our legal expertise to reduce the agreement to a formal legal document. We do this quite often for our budget – conscious clients. We are able to protect their interests without full scope representation and hourly billing for back and forth negotiations.