Strategic and Legal View of Licensing Patents

AuthorJames Markarian
ProfessionSiemens Corporation
C07 09/02/2011 12:46:58 Page 121
Strategic and Legal View
of Licensing Patents
James Markarian
Siemens Corporation
Over the past 20 years, patent licensing revenue has grown in leaps and bounds
with companies pushing their intellectual property (IP) departments to gener-
ate revenues by licensing out their patents. That trend seemed to accelerate during
the past 10 years with the release of Rivette and Kline’s book, Rembrandts in the
Attic: Unlocking the Hidden Value of Patents, which brought patent licensing a more
widespread awareness among corporate executives.
During this recent period,
licensing activity has further been increased through the growth of entities whose
sole purpose is to develop licensing revenue from patents (‘‘trolls’’ or ‘‘nonpracticing
entities [NPEs]’’),
and by academia taking a more aggressive approach to lice nsing
its patents through the establishment, or expansion, of university technology transfer
offices (TTOs).
In the present challenging economic times, there is even a great er sense of ur-
gency and pressure on corporate IP departments to generate additional revenues
from corporate assets. C ompanies are using these revenues to offset downtu rns in
their core business or to try and help transition into more lucrative fields of
In addition to revenue generation, corporate IP departments are further
being tasked to handle licensing-in activities by limiting the payouts to third parties
who are looking to license their own patents such as other companies, university
TTOs, and NPEs. However, there has been a reaction in the courts to moderate all
this increased patent licensing activity. As a result, court rulings over the past few
years have made it more diffic ult to license patents and cre ated more risks for the
licensor. Conversely, these recent court rulings have benefited licensees by provid-
ing them with greater defenses and tools to ward off a licensor. These rulings are
also being reflected in the America Invents Act presently pending in Congress.
What this chapter will explore is practical strategies and best practices from an
‘‘in the trenches’’ view, which will assist corporate IP departments to maximize
C07 09/02/2011 12:46:58 Page 122
licensing-out revenues, while limiting risks, and will also discuss how to best handle,
and if possible reduce, licensing-in claims.
Before further exploring the practices and suggestions for licensing out and licensing
in, it is useful to go over some of the nomenclature in the field; for instance, what is a
license, and what are the different types of licenses?
&Apatent license is simply a contract between an owner, or holder, of patents,
and a third party who wants to acquire rights to those patents. Since a patent
gives its owner or holder (‘‘licensor’’) the right to exclude others from the use of
the patented subject matter, a patent license amounts to an understa nding that
party (‘‘licensee’’) that acquires a license to the owner’s, or holder’s, patent
rights. Depending on the negotiations between a licensor and licensee, the li-
cense may provide the licensee with the right to manufacture, use and/or sell
the patented apparatus, article of manufacture, process, and/or method, and
could be limited as to geography or field of use.
&Alicensor is a person, company, or entity who is transferrin g some or all of its
patent rights.
&Alicensee is a third party that obtains some or all of the patent rights held by the
&Asublicense is a right that can be granted to the licensee by the licensor, which
allows the licensee to transf er some or all of its rights lice nsed patent rights to
another person, company or en tity (‘‘sublicensee’’). A lice nse should explicitly
state whether or not sublicense rights are granted to the licensee.
&An opportunity or outreach refers to the situation in which a single person, com-
pany, or entity, who has the potential to be a licensee, is, or will be, contacted
about taking a license under a single patent, or a collection of patents having a
common technology. The person, company, or entity contacted is referred to as
apotential licensee.
&Aprogram is a collection of opportunities or outreaches, wherein two or more
persons, companies, or entities are, or will be, contacted about taking a license
under a single patent, or collection of patents having a common technology.
&Aroyalty audit is a when a person or entity, hired by or working for the licensor,
reviews the records of a licensee to make sure they are paying the amounts
owed under the license.
&There are three types of patent licenses—an exclusive license, a nonexclusive
license, and a cross-license.
&An exclusive license is a type of license wherein the licensor agrees to li-
cense only one licensee for a particular technology. In an exclusive license,
the licensee is provided with the right to sue third parties for infringing the
licensed patents, and may have the right, depending on the terms of the
exclusive license, to sublicense others. To have the right to sue, the licensor
musthave transferredtothelicensee all substantial rights’’ in the licensed
122 Intellectual Property Operations and Implementation

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