Licensing - The grant clause.

Posted on February 8, 2010 by Richard Gearhart

One of the most important clauses in a license agreement is the “grant clause”. The grant clause defines the scope of the legal rights that the patent holder (or “Licensor”) gives to the user (“Licensee”). The scope of the grant clause has significant implications for the commercial use of the invention.

Here is a typical grant clause that could be found in a license agreement – there are many ways to grant rights in a patent, the one below will suffice for illustrative purposes:

 

“The Licensor hereby grants the Licensee an exclusive, royalty bearing license in US Patent 9,999,999  in the territory defined as the United States.”

 

The grant clause is full of important information.

 

First, the grant clause states the license is exclusive. This means that nobody except the Licensee will have the right to make, use or sell the technology.   The parties have agreed that only this one user will have the right to commercialize this invention. This is in contrast to a “non-exclusive” license. A non-exclusive license gives the patent holder the right to grant additional licenses to other users. In some cases, the license can be drafted in a way to start as an exclusive license, then change to a non-exclusive license. This can be conditioned to happen if the user does not meet certain conditions of the license, such as minimum sales requirements. Sometimes, the patent holder agrees to give a time advantage to the first user, then after a year open the market to other users.

 

Second, the grant clause above states that the license is royalty bearing. This means that the user will pay the licensor a fee for the right to use the technology. Usually, the royalty is paid on a per unit sold basis, although other methods of calculation are possible. The royalty can be paid on a net profit or a gross profit basis. Royalty rates, or the percentage paid per unit, can very greatly depending on the product and industry. The percentage is usually an important focal point of the negotiations.

 

The grant clause also refers to a specific patent, here fictionally referred to as US Patent No. 9.999.999. It could also refer to several patents, a patent portfolio, or even to just one or more claims to a patent. So a license can grant rights in multiple patents as well as

a single patent.

 

The last part of the clause states the geographical region in which the license is granted. In this case, the grant is in the United States. This can be altered to be a region or territory, or expanded to be global, or a region.

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Licenses - Introduction

Posted on January 29, 2010 by Richard Gearhart

One of the most common ways an inventor can take advantage of their patent is through licensing. A license gives another rights to make, use or sell an invention. However, the patent holder retains ownership of the patent.   A license is a bit like a renting a piece of real property. The owner still owns it, but lets another use it, usually for a profit. When it’s a real property license, the payment is called “rent”. If it’s a patent that’s being licensed, the property is called a “royalty”.

Licenses allow the inventor to share in the profits of the manufacturer or producer of the invention. Often, the license will be based on the number of units sold by the producer. This arrangement is advantageous for the producer, since the producer only pays the licensor based on the producer’s sales. 

 

The license can take many different forms and can be tailored to the needs of the parties to the transaction. For example, the license can be exclusive or non-exclusive to the party receiving the license. If the license is exclusive, then only the party receiving the license can make, user or sell the invention, and nobody else. If the license is non-exclusive, then the owner of the patent can license it many different parties.

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