Does a License to "make" a Patented Product Inherently Include a Right to Have a Third Party Make the Product or Its Components?

• Publication year: 2024
• Citation: Vol. 7 No. 1

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Sophie (Lu) Yan ^*

In this article, the author explains that patent license agreements should not only clearly define the rights that are granted, but should expressly state the rights that are not being granted, such as the "have made" rights. In the author's opinion, the mere reliance on a broad "reservation of rights" provision or the assumption of no implied licenses should be avoided.

The rapid adoption of artificial intelligence has generated a surging need for advanced chips and cutting-edge semiconductor manufacturing. The foundry model, which refers to outsourcing certain aspects of a company's manufacturing processes to specialized third-party chip manufacturers (foundries), revolutionized the semiconductor industry by restructuring chip manufacturing. Potential disputes can arise when a company has a foundry make certain products that are covered by a patent license agreement.

A grant clause of a license agreement can often grant a licensee rights to "make, use, sell or offer for sale" licensed products covered by the licensed patents throughout a defined territory, without referring to "have made" rights. This can result in ambiguity regarding whether and under what conditions the licensee possesses the right to have a third party make the licensed products on its behalf.

Therefore, both the licensor and the licensee need to carefully consider whether and how to expressly address "have made" rights to avoid potential disputes.

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Background

The U.S. patent statute grants a patent owner rights to exclude others from "making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States." ¹ Patent licensing allows a patent owner to monetize their invention by allowing others to use or commercialize it while retaining ownership of the patent. Patent licensing can be beneficial for both parties involved: the patent owner can generate revenue without directly manufacturing or marketing the product, while the licensee can gain access to valuable technology or innovation without the need to invest in research and development.

Licensing agreements typically address issues such as licensing fees, royalty rates, duration of the license, intellectual property rights, sublicensing terms, and dispute resolution mechanisms. Because the license grant is at the heart of any patent license agreement, the grant clause should express precisely what rights the licensor is granting to the licensee and clarify what rights are not being granted. Thorough and well-drafted patent licensing agreements are crucial to ensure that both parties' rights and obligations are clearly defined and protected, and potential risks are minimized.

With rapid advancements in electronic devices, there is an insatiable demand for advanced chips and related semiconductor manufacturing. For cost-saving and efficiency purposes, it is common that certain semiconductor companies focus on designing the most advanced chips and then license out or cross-license their designs. ² The design companies or the licensees then have specialized third-party manufacturers (foundries) to make the products for them. ³ Disputes can arise when the patent license agreements do not clearly define whether the grant clause includes such "have...