A
few weeks ago, I posted a piece to this blog urging patent licensees to be
mindful about the type of license that they entered.* Essentially, patent
licenses differ largely according to the type and extent of rights granted by
each license. A patent license should not be viewed as a one-size-fits-all solution
to a technical or business need, but should rather be viewed as a uniquely-crafted
solution for a particular business purpose. As discussed in my earlier blog
entry, a patent licensee can suffer profound negative consequences, if it does
not carefully analyze a potential license arrangement. As you might expect,
there are serious pitfalls for licensors to consider as well. Unfortunately, many
people are simply unaware of one of the more serious of these pitfalls, a
pitfall that can be irreparably fatal.
One
popular and potentially lucrative way to monetize patents is to license them to
third parties. In theory, the approach
is fairly simple: grant third parties one or more rights to your patent and, in
return, they provide you with some measure of value, e.g., royalties on product
sales, a lump sum, a cross-license to one or more of their patents, etc. While
the theory is simple, its real-world application can render a patent, or even
an entire patent portfolio, effectively valueless if done improperly. Perhaps
even more alarming, most patent owners will not have a clue that their
licensing arrangement has damaged their portfolio value until well after the
damage is done.
Patent
owners must always keep in mind that a patent that cannot be enforced has very
little, if any, value. It is the potential of enforcement that incents others to
license patents. Patents do not have to be licensed on an all-or-nothing basis,
but can be divided into many various different rights and the individual rights
may be separately licensed in much the same way that a proprietor may slice up
a whole pie and sell it by the slice. Theoretically, the more slices of the pie
sold, the more money that can be made. This basic notion has motivated a lot of
patentees to offer many different patent rights to many different licensees,
including the right to use, the right to manufacture, the right to sell, the
right to distribute, the right to import or export, the right to sub-license, and/or
the right to sue on the patented invention.
While
there is a significant profit-motive to enter into agreements with many
licensees and to thinly slice the pie, doing so carelessly can yield the
anomalous result that no one has the
ability to enforce the patent. Importantly, a licensee can bring suit only
where it holds all or substantially all of the rights to a patent, or where it
is an exclusive licensee and the patent owner joins suit. A non-exclusive
licensee that lacks all substantial rights is a “bare licensee” and cannot
bring suit (i.e., it does not have “standing” to bring suit), even where its
license contains an express right to sue. Consequently, where a patent holder
grants non-exclusive licenses to several different licensees, but grants the
exclusive right to sue to one of the non-exclusive licensees, that patent
holder has potentially created a situation where no one can bring suit against
an infringer. In this instance, the party
that has the exclusive contractual right to bring suit lacks standing to bring
suit.
As
easily imagined, discovering that a patent or patent portfolio cannot be sued
upon can create a messy situation. You should consult a qualified IP attorney
before negotiating or signing any license agreement.
* Patent
Licensees: Be Mindful of What You Ask,
Posted April 26, 2010.
Contributed by
Tennell Lockett
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