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7 Key Patent License Terms

Thu Mar 17th, 2022 by  Patents

Patent license agreements allow companies to monetize their innovations without (or in addition to) developing their own products and services. These agreements have several key terms, and companies must ensure that their patent licenses contain appropriate restrictions and protections. If a license agreement doesn’t contain the necessary restrictions and protections, not only could this reduce the value of the license for the licensor, but it could potentially lead to the loss of the licensor’s exclusive patent rights as well.

Below are seven examples of key patent license terms that our Alabama patent lawyer wants you to know:

1. License Grant

The license grant establishes the licensee’s right to use the patent in accordance with the terms of the agreement. Broadly speaking, there are three types of patent licenses:

  • Sole – The licensor and licensee are the only parties permitted to use the licensed patent.
  • Exclusive – The licensee is the only party permitted to use the licensed patent.
  • NonExclusive – The licensor reserves the right to grant additional licenses to third parties.

The agreement should also address whether the licensee has the right to sublicense the patent to other parties. If sublicensing is permitted, the agreement should establish terms and restrictions regarding the licensee’s right to sublicense as well.

2. Scope and Restrictions

A patent license agreement should clearly define the scope of the license. This means that the agreement should make clear what uses and commercial activities the licensee is and isn’t permitted to pursue. It should also expressly state any restrictions on the licensee’s use of the licensed patent, such as a restriction on reverse engineering.

3. Intellectual Property Rights

The agreement should make clear that it is a license only, not an assignment. The licensor should retain ownership of all intellectual property rights.

4. Royalties and Payment

All patent license agreements should clearly state the royalty fees and payment terms. From the licensor’s perspective, the licensee should be obligated to timely pay all royalties (and any other applicable fees) regardless of any disputes arising under the agreement.  

5. Term

The “Term” clause specifies the duration of the patent license. If the license includes a renewal option, the conditions for renewal should be clearly defined here as well.

6. Termination

In addition to specifying an expiration date, a patent license agreement should also specify the grounds for pre-expiration termination. Examples of common grounds include exceeding the scope of the license, non-payment of royalties and other contractual defaults.

7. Dispute Clauses

While both parties will want to avoid disputes, it is important to include terms regarding dispute resolution should a disagreement arise. Some common examples of dispute clauses include:

  • No-Contest Clause – A clause that prohibits the licensee from contesting the validity of the licensed patent.
  • Indemnification – An obligation for the licensee to assume liability for any claims arising out of the licensee’s use of the patent.
  • Insurance – A requirement for the licensee to carry adequate insurance to cover its indemnification liability.
  • Choice of Law and Venue – Clauses that specify the state law governing contract-related claims and the state or city in which any claims must be filed.

These are just examples. Patent license agreements must include several other terms, and every patent license agreement should be custom-tailored to both the patent and the commercial relationship involved. If you need to know more about patent licensing, we encourage you to contact us for more information.

Schedule an Appointment with an Alabama Patent Lawyer at AdamsIP

Have a question about patent licensing? We can help. Call 251-289-9787 or contact us online to schedule an appointment with an Alabama patent lawyer at AdamsIP. We assist clients throughout the state including Mobile, Huntsville, and Birmingham.