Defenses – License to Use
A patent gives the patentee the exclusive right to make, use or sell that product for a specified period of time. The patent holder can also extend these rights to others through a written licensing agreement. This is usually done in exchange for royalty payments or other consideration. If a licensee makes, sells or uses a patented product with permission of the patentee, he or she is not guilty of infringement.
However, patent holders do not have free reign to make their licenses unduly restrictive. If they do, courts can find them guilty of “misuse” – or extending the patent beyond its lawful scope. If the patent holder is found guilty of misuse a court can find the license agreement, or at least portions of it, null and void.
A finding of misuse is based on a very fact-specific inquiry. Some examples of a finding of inappropriate patent license restrictions are noted. The list is not meant to be exhaustive or conclusive.
- Requiring that unpatented goods be purchased and used along with the patented goods or processes;
- Prohibiting the licensor from producing or selling competing goods;
- Conditioning the granting of one license upon the acceptance of another license;
- Extending the license beyond the patent’s expiration date;
- Making a royalty payment based on the licensees’ total sales rather than sale of the patented item, unless both parties agree to such an arrangement;
- Controlling the price of the patented product after resale, except when the licensee also makes and uses the product;
- Imposing territorial restrictions beyond the initial sale; and
- Imposing market channel restrictions beyond initial sale.
Discrimination in Licensing
Sometimes patentee plaintiffs are restricted from offering different royalty rates to different licensees. The law in this area is very complex and much depends on the relative market position of the patentee and the licenses. It is advisable to have an experienced intellectual property attorney involved to give input as negotiations proceed, and to review all licensing agreements before they are executed.