Licensing Your Intellectual Property

In order to get a patent or trademark on an invention, the invention must be NOVEL, USEFUL AND NON-OBVIOUS.  Essentially, an invention is something that is new that has never been patented before, that does not naturally occur (i.e. cannot patent potatoes) and that is not too close to another patented product.  Major improvements on an existing patent may be unique enough to constitute an invention as well.

An inventor can profit from a patented invention by creating agreements with manufactures and distributors who will sell the product and give a percentage of the sale proceeds to the inventor.  In a patent assignment, the patent owner is allowing another party to come in and buy all rights to the patent.  In a licensing agreement, the patent owner retains ownership but allows the third party to manufacture or distribute the goods for a fee.

Invention License Overview

A trademark owner may allow other third parties to manufacture or sell the trademarked or patented item pursuant to a license agreement.  The license would give a third party the right to make and/or sell the trademarked invention pursuant to the license agreement.  Generally speaking, the inventor includes a clause in the license agreement that entitles the inventor to a certain percentage of the proceeds from the sales of the patented invention (otherwise known as royalty payments). 

What Is A License Agreement?

Written Agreement

A written license agreement gives a third party the right to make and/or sell the trademarked invention pursuant to the license agreement. The written license agreement will include all terms of the license, including royalties, proceeds from the sale of the product and the length of time the license is granted.  Written licensing agreements should generally be drafted by an attorney specializing in trademark law.

Oral Agreement

Since a licensing agreement is a legal contract, it can technically be enforceable whether it is written or oral.  However, since there are generally significant costs associated with setting up a licensing agreement, especially if manufacturing of a product is involved, it is best to memorialize the licensing agreement in writing.  Whether written or oral, the license agreement should include all terms of the license, including royalties, proceeds from the sale of the product and the length of time the license is granted.  It is easiest to avoid ambiguity and confusion by having the agreement in writing.

Assignments

In a patent assignment, the patent owner is allowing another party to come in and buy all rights to the patent.  The assignment actually assigns, or transfers, all rights of the patent to a third party for a one-time buyout fee.  Once an assignment has occurred, the original patent owner relinquishes all rights to the patent and the new owner may operate as the sole owner of the patent.

How Licensing Works

Negotiating The License

Negotiating a license agreement can be a very involved process, and it is usually best to have a lawyer involved in the negotiation process.  A license essentially gives a third party the right to make and/or sell the patented or trademarked invention pursuant to the license agreement.  A license agreement should include all terms of the license, including (but not limited to):

  • Royalties and percentage payments;
  • Proceeds from the sale of the product;
  • Exclusivity of the license;
  • Sublicensing rights of the manufacturer/distributor;
  • Guaranteed performance or required minimum payments;
  • Length of time the license is grante

Licenses give a third party rights to manufacture or distribute an invention, but the original investor (and patent owner) still maintain full rights to the patent itself.  Negotiating a license agreement is important for the inventor (licensor) and the third party (licensee) because it can be a lucrative partnership with the third party if properly negotiated.

Execution And Monitoring The License

After the licensing agreement has been signed and executed, there still may be a significant waiting period before actual manufacturing or distribution of the invention starts taking place.  Many times, there are significant capital requirements that make the start-up of a licensing agreement a costly and time consuming process.  If a business is going to incur the cost and expend the time necessary to make a licensing agreement profitable, they should take great care to make sure that the licensing agreement provides for exclusivity within an established area.  By monitoring the licensing agreement carefully, both the licensee and licensor can ensure that the licensing relationship is equitable and fair.  Monitoring can occur by setting performance milestones whereby the licensee and licensor have the ability to check-in on the manufacturing and distribution process.  The contract may have a clause that stipulated that the license is terminable on the occurrence (or nonoccurrence) of certain events.  If the parties fail to perform in compliance with the licensing agreement, either party may have the option to terminate the agreement altogether.

Avoid Agreeing To Multiple Agreements

Licensing conflicts can occur when more than one licensing agreement is signed.  In situations where a licensing agreement stipulates exclusivity in a certain area, for example, signing another licensing agreement may infringe or conflict with the existing agreement if the location provisions are violated.  In order to steer clear of such licensing conflicts, parties should avoid signing multiple licensing agreements that have the possibility of conflicting with one another.

Transferring Ownership Of The Invention To Your Business

In order to transfer ownership of a patent to another business (third-party business), there must be a formal assignment of the patent.  In a patent assignment, the original patent owner is allowing a third-party business to come in and buy all rights to the patent.  The assignment actually assigns, or transfers, all rights of the patent to the third-party business for a one-time buyout fee.  Once an assignment has occurred, the original patent owner relinquishes all rights to the patent and the new owner may operate as the sole owner of the patent; thus, ownership of the patent is successfully transferred.

Keeping Records

Keep Track Of Your Creative Process

Records of the creative process, starting with the initial ideas and thoughts, should be kept in an invention log in pen, not pencil.  All pages should be bound and pages should be consecutively numbered.  Keeping track of the creative process is an essential element in the development of intellectual property.  The ability to show the evolution of an idea from inception to completion can be vital to successfully obtaining and maintaining a patent or trademark.  Additionally, clear records can be sufficient evidence of the date an idea or patentable invention was created.  By keeping track of the stages of invention, and describing each step in detail, the evidence will be available should there be a challenge to the uniqueness or timing of an invention.

Keep Track Of Business Discussions

During the process of marketing and funding an invention, business discussions may be had with third parties regarding specifics about the invention.  Once confidentiality agreements are signed, details of an invention may be disclosed to a party from whom an inventor is seeking funding; however, detailed records of all business discussions should be kept by the inventor.  In the event that a business meeting results in a third party attempting to use the intellectual property of an inventor without permission or a licensing agreement, the records of the prior business meeting could be helpful in proving that confidential information was disclosed and misappropriated by the third party.

Challenges To Your Ownership Of The Invention

A trademark can be challenged in a number of ways depending on how long the trademark has existed.  For trademarks that have existed for longer than 5 years, and which have been granted “incontestability,” the challenges available are more limited.

Types Of Ownership Challenges

  1. CHALLENGE 1 – an individual may challenge a trademark by alleging that the trademark owner is not the true owner;
  2. CHALLENGE 2 – an individual may challenge a trademark by alleging that the mark was improperly registered;
  3. CHALLENGE 3 – an individual may challenge a trademark by alleging that the mark is descriptive of the goods or services it identifies and is therefore lacking in the required distinctiveness.

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