Before knowing about what patent licensing agreement is, the first thing comes
is what exactly is the meaning of patent? The term patent is defined under
Section 2(n) of the Indian Patent Act 1970 which states that a patent means
patent for any type of invention granted under this Act. A patent is
basically a right granted to a person for the invention of a product or a
process through which a new method of commencing a particular thing is evolved.
A patent provides protection of a invented product/process for a term period of
20 years, after expiry of which the patented product/process will be opened for
commercial purpose and the inventor has to disclose all the information relating
to its inventing process so that it is easy for others to use and which will
also lead to further enhancement in the technology of the product/process. In
this way, patenting a product not only provides for its protection of the right
of the inventor but also motivates other inventors for future enhancement of the
In the case of Midas Hygiene Industries (P) Ltd vs. Sudhir Bhatia
, the court
held that in case of infringement of a patent right, normally an injunction must
follow. Also the grant of an injunction becomes necessary if it appears that the
adoption of a patent right was dishonest.
When a patent is being granted regarding a particular product/process, then that
particular product/process cannot be utilized for commercial purpose, made or
sold without the permission of the person who has invented that particular
product/ process. Only the owner of a patented product/process has the right to
decide who will use his product and who cannot. Also when the inventor grants
permission to another person for using his patented product/process, in return
the inventor receives royalty fees.
The inventor can also sell his right of
invention to another person with which the right of ownership will also be
transferred to that particular person and he will then become the owner of that
patented product/process. When the inventor of the product/process gives the
right of the product/process to another person/third party for the purpose of
using that particular product/process, the concept of patent licensing comes
Patent licensing means transferring the right of ownership for a specified
period of time from the inventor to a third party who will then enjoy the
benefits from that invented product/process. The owner of the patented
product/process gives his consent to a third party to enjoy the benefits arising
out of the product/process and also to sell or use it.
When the inventor accepts
the offer for selling his invention to another person, an agreement is made
between both the parties i.e. the licensor (inventor of the product/process) and
the licensee (person who will enjoy the benefits after the right of ownership is
transferred to him). The licensor will be getting a royalty fees in return of
him giving consent to the other party to use, sell or extract benefits from his
In patent licensing, the licensor does not permanently transfer the right of
ownership to the licensee rather it is for a specified amount of time which is
mentioned in the agreement. The terms and conditions of the agreement are
mutually decided by both the parties to the agreement i.e. the licensor and the
The licensee can extract the benefits from the patented product only
for the time period mentioned in the agreement. After the expiry of the
specified time period, the right of ownership return back to the inventor
(licensor) and the licensee can no longer extract the benefits out of the
Advantages Of Patent Licensing
Limited Period: The main advantage of patent licensing is that the transfer of right to
extract benefits out of the patented product/process by the licensee can
only be for a specified period of time that is mentioned in the agreement
Transfer of Risk: The production and manufacturing of a
product/design/process requires a lot of risk. Therefore with the help of patent
licensing the inventor can transfer suck risks involved in production of the
patent product/design/process to the licensee.
Competitive Advantage: If a patented product/process is already licensed to a
well established company or organization which is having a large amount of
customer base then the patented product/process will have a larger market share
to capture in comparison to the patents that are not having a large customer
Global Market: Patent licensing helps companies to overcome the difficulty of
having mass production of a product individually as it permits other companies
to also produce the same product which results in mass production of the said
Disadvantages Of Patent Licensing
Loss of Control: The main disadvantage of patent licensing is that it leads
to loss of control over the patented product/process/design as the licensor
transfers the right to extract benefits out of the product to the licensee.
Difficulty to determine licensee: Another disadvantage of patent licensing is
that it requires a lot of research and efforts to find out the right licensee
for the invented product/process. It is necessary for an inventor to find the
appropriate licensee in order to get maximum benefits out of the agreement.
Risk of Patent Reputation getting damaged: When the licensor transfers the
right to extract benefits out of the patented product/process, he solely relies
on the ability of the licensee as how effectively he will commercialize the
patented product. If the licensee does not perform well in commercializing the
patented product, it will ultimately lead to affect the reputation of the patent
and its future success.
Approaches To Patent Licensing
Carrot Approach: In this approach, the inventor (licensor) of the product
must approach the potential licensee and persuade him to license the said
product. The potential licensee can choose whether to license the patented
product or not. Therefore, the licensor must convince the potential licensee to
license the patented product if he wants to generate more income/benefits from
the invented product.
Stick Approach: In this approach, it has already been determined that the
potential licensee is somehow using the patented product without the consent of
the licensor and thus, has infringed the right of the licensor. Therefore, the
licensor approaches for the method of litigation in order to stop the potential
licensee to further infringe the right of the licensor.
Types Of Patent License
Exclusive License: In this type of license, all the rights of a patent owner (licensor) are
transferred to the licensee except the title of the patent, which means that
the licensee shall enjoy all the benefits arising out of the patented
product but shall not be in a position to sell the patented product or
further transfer it to another person
Non-Exclusive License: In this type of the license, all the rights of a
patent owner are transferred to the licensee, including the title, which means
that the licensee shall have the power to sell the patented product to another
person also. Also the licensor have the power to transfer such right to another
licensee also, thereby making various licensees to enjoy benefits arising out of
the patented product.
Sub License: In this, the licensor grants a certain licensed right of
the patented product to various organizations in order to make the products.
Cross License: In this, there exists an exchange of license between
various organizations for making the product. Cross license is preferred in
those cases where the product involves the support of other products in order to
make its place in the market for better utilization.
Compulsory License: in this, the government grants permission
(irrespective of the will of the licensor) to utilize the patented product, sell
or make a patented design, for public benefit. It is generally seen in cases of
Specific Clauses Governed Under Patent Licensing Agreement
Nature of License: The nature of the license should be kept in mind i.e. whether to make an
exclusive license or a non-exclusive license. The licensor shall decide to
whether he wants to transfer all the rights of the patented product
(including title) to the licensee or not, depending upon how much royalty
fees he wants to generate out of the license agreement
Written form: the agreement shall be in writing form and should be clear and
precise on the terms to be mentioned in.
In the case of Sergi Transformer Explosion… vs Kumar Pratap Anil & Ors., the
court stated that the registration of product with the patent office is not
mandatory as long as the license agreement is in written form and conveys the
intention of the party to execute the said agreement.
Term of License: Another aspect of the license agreement is to decide the
time period up to which the rights shall be transferred to the licensee. The
time limit shall not be for a long period neither shall be for a short time.
Also the agreement must contain the information relating to the expiry of the
agreement and its renewal (if any).
In the case of HCL Limited vs The Commissioner Of Income Tax New, the court
held that any patent which may be granted in favor of APOLLO or its licensors
during the term of the agreement, with respect to the licensed products shall be
deemed to be considered as a part of the technology & shall be promptly conveyed
to HCL in accordance of the agreement.
Parties Obligations: The obligations or restrictions of the parties shall be
stated clearly so as to avoid any future complications.
Termination of Contract: The license agreement must contain proper terms and
conditions, violation of which shall lead to termination of the contract. The
agreement shall also consist of the consequences after the termination of the
agreement has taken place. Example- if the other party has breached some terms
of the agreement, then it will lead to compensation to the other party.
Indemnity Clause: It is included in order to compensate the other party in
case it suffers a loss due to the breach of terms by the act of other party.
Royalty fee: The licensor, in exchange for transferring the rights of the
patented product to the licensee may demand for fees called ‘royalty’. It is the
amount for letting the licensee extract benefits out of the patented product for
a specified period of time.
Award Winning Article Is Written By: Mr.Kush Bisht
- The Indian Patent Act, 1970, s.2(n
- 2004 (73) DRJ 647, 2004 (28) PTC 121 SC, 2004 (2) SCALE 231, (2004) 3
- I.A. NO.16042/2010 in CS(OS) NO.1610/2010
- Income Tax Appeal Nos. 93/2002 & 120/2008
Authentication No: JU34455876304-18-0621