Licensing a patented product is one of the most efficient ways to bring your invention to market without directly handling manufacturing, marketing, or distribution. It gives the patent owner the legal ability to allow someone else to use, produce, or sell the patented invention in exchange for payment or other agreed benefits. For many inventors, licensing is the preferred method to earn income from their ideas while focusing on innovation.
In this article, you will learn everything about how to license a patented product, including legal requirements, steps to follow, relevant laws, practical examples, and frequently asked questions.
Understanding Patent Licensing
A patent license is a legal agreement between a patent holder and another person or company. This agreement gives the licensee the right to use the patented invention for specific purposes and under certain conditions. The patent owner remains the legal holder of the patent but allows someone else to benefit from it commercially.
There are different kinds of licenses.
- An exclusive license means only one party, other than the patent owner, can use the patent.
- A non-exclusive license allows the patent owner to license the patent to multiple users.
- A sole license means the licensee is the only one allowed to use the patent, but the patent owner also retains the right to use it.
According to WIPO and national laws such as the United States Patent Act, any patent license agreement must be written clearly and signed by the parties involved. The terms must include what rights are being given, for how long, in which geographic area, and under what conditions.
Example of License a Patented Product
Qualcomm Licenses Patents to Apple
Qualcomm owns a vast portfolio of patents related to wireless communication technologies (like 3G, 4G, and 5G modems).
Apple uses Qualcomm’s chips and technologies in iPhones and other devices.
Instead of buying the patents outright, Apple licenses them — meaning it pays Qualcomm to use the patented tech, but Qualcomm retains ownership.
Steps to License a Patented Product
Step 1: Review your patent rights
Before offering your patent for licensing, you must ensure that the patent has been granted and is active.
Make sure all government fees have been paid and that you are the rightful owner. If the patent is co-owned, you will need the consent of the other owners.
Step 2. Identify suitable licensees
The next step is to find individuals or companies who might be interested in your patented product.
These could be businesses already operating in the industry, new startups looking for innovation, or foreign companies wishing to expand into new markets. You can attend trade fairs, use online patent databases, or contact industry networks to connect with potential partners.
Step 3. Decide what kind of license you want to offer
Choosing between an exclusive or non-exclusive license depends on your goals. If you want to have more control and limit competition, an exclusive license might be better.
If you prefer to earn income from multiple sources, a non-exclusive license can be more flexible.
Step 4. Determine the value of your patent
This step involves calculating how much the license is worth. Some patent owners charge a fixed annual fee, while others receive a percentage of the sales.
In most industries, royalty rates are between two and ten percent, but it depends on how valuable or unique the patented product is. You may need the help of a valuation expert to determine a fair price.
Step 5. Negotiate and draft the licensing agreement
The licensing contract must include all necessary details. These include the rights being granted, the payment structure, the period of the license, how the patent can be used, and what happens if either party fails to meet the terms.
It should also address issues like confidentiality, dispute resolution, and renewal terms. A well-drafted agreement helps prevent future conflicts.
Step 6. Register the license if required
In some countries, registering the license with the national patent office is mandatory. In other countries, it is optional but advisable. For example, in the United States, you can record the license with the USPTO to give public notice of the arrangement.
In India and several European countries, registration is required for enforcement against third parties.
Step 7. Monitor and manage the license
Once the license is in place, you should make sure the licensee is following the agreed terms.
This includes regular royalty payments, quality control if applicable, and making sure the patent is being used in the agreed manner. Monitoring protects your invention and ensures you receive fair compensation.
Landmark Cases on Licensing a Patented Product
1. Bayer Corporation v. Natco Pharma Ltd. (2012)
- Issue: Bayer held a patent for the cancer drug Nexavar. Natco applied for a compulsory license under Section 84 of the Indian Patents Act, 1970.
- Outcome: The Indian Patent Office granted the license, citing high drug prices and limited availability.
- Significance: First-ever compulsory license in India. It emphasized that public interest and affordability can override exclusive patent rights.
The case was first decided by the Controller of Patents on March 9, 2012, and later appealed by Bayer to the Intellectual Property Appellate Board (IPAB), which upheld the compulsory license.
2. Microsoft Corp. v. Motorola Inc. (696 F.3d 872 (9th Cir. 2012), United States of America)
- Issue: Motorola demanded high royalties for standard-essential patents (SEPs) used in Microsoft products.
- Outcome: The court ruled Motorola violated its obligation to offer FRAND (Fair, Reasonable, and Non-Discriminatory) terms.
- Significance: Set a precedent for reasonable royalty rates in SEP licensing and curbed “patent hold-up” tactics.
3. Apple Inc. v. Qualcomm Inc. No. 20-1683 (Fed. Cir. 2021)
- Issue: Apple challenged Qualcomm’s licensing model, alleging excessive royalties and anti-competitive behavior.
- Outcome: The parties settled in 2019 with a multi-year licensing and chipset supply agreement.
- Significance: Highlighted the power dynamics in tech licensing and the importance of global cross-licensing deals.
4. Novartis AG v. Union of India (India, 2013)
- Issue: Novartis sought a patent for a modified version of its cancer drug Glivec.
- Outcome: The Indian Supreme Court denied the patent, citing lack of enhanced therapeutic efficacy under Section 3(d) of the Patents Act.
- Significance: Reinforced that minor modifications to existing drugs don’t qualify for new patents — a key issue in evergreening and licensing strategies.
Legal Background for Patent Licensing
Patent licensing is rooted in intellectual property law, which grants inventors exclusive rights to their inventions for a limited time. Licensing allows the patent holder to commercialize their invention without manufacturing or selling it themselves.
Governing Laws and Treaties
1.National Patent Laws
Each country has its own patent legislation (e.g., 35 U.S.C. § 261 in the U.S., Patent Act 1977 in the UK). These laws define how patents are granted, transferred, and licensed.
2. International Treaties
- TRIPS Agreement (WTO): Sets minimum standards for IP protection globally.
- Patent Cooperation Treaty (PCT): Streamlines international patent applications but doesn’t grant global patents.
3.Contract Law
- Patent licenses are private contracts, so general contract principles apply: offer, acceptance, consideration, and legality.
- Disputes are often resolved under civil law or common law, depending on jurisdiction.
Key Legal Elements in a Patent License Agreement
A well-structured license should include:
- Grant of Rights: What exactly is being licensed (make, use, sell)?
- Territory: Where can the licensee operate?
- Exclusivity: Is the license exclusive, non-exclusive, or sole?
- Term: Duration of the license.
- Royalties: Payment structure — fixed, per unit, or percentage.
- Audit Rights: Licensor’s right to verify sales and royalties.
- Infringement Handling: Who sues if someone infringes the patent?
- Termination Clause: Conditions for ending the agreement.
A poorly drafted license can lead to disputes, lost revenue, or unenforceable rights.
Common Issues Faced in Licensing a Patented Product
- Many inventors struggle with valuation. Without knowing how much their patent is worth, they might ask for too much or too little.
- Another challenge is finding the right partner. Some licensees may misuse the patent or fail to market it properly.
- Legal issues can also arise if the license agreement is vague or poorly written.
That is why professional advice is highly recommended before signing any contract.
FAQs About Licensing a Patented Product
You can only license a granted patent. However, you can sign a preliminary agreement, such as an option to license, which becomes effective once the patent is granted.
It depends on the market, the patent’s value, and the agreement. On average, inventors earn between two and ten percent of the licensee’s product revenue.
Yes. Licensing involves legal, financial, and commercial risks. A lawyer ensures that your rights are protected and that the agreement is enforceable.
If the licensee violates the terms, you can take legal action, terminate the agreement, or seek compensation, depending on what the agreement allows.
Yes, but only if your patent is registered in those countries. Patents are territorial, so you must file separately in each country where you want protection and licensing rights.
Final Thoughts
Licensing a patented product is a powerful way to turn your invention into a business opportunity. It allows you to reach markets you might not be able to enter on your own. However, success depends on understanding your rights, choosing the right license structure, finding a suitable partner, and drafting a clear legal agreement.
Whether you are an individual inventor or a growing business, licensing offers a flexible and scalable method to earn revenue from innovation. With the right approach and professional support, you can license your patented product effectively and build long-term value from your invention.
If you are considering licensing your patent and want expert legal assistance, consulting with an experienced intellectual property lawyer can help you navigate the process, avoid mistakes, and secure the best possible deal.
