Licensing is a procedure in which the owner of the product provides the right to a third person to seek benefits from the product. Similarly, in patent licensing the owner provides the right to another party or individual to make, use and sell the licensed product. Generally, the license agreement includes the agreement of the parties on some particular terms and conditions.
The agreement contains product definition, payment mode between the parties, Licensing purpose and many more. In the modern-day IP scenario, Patent Licensing is the most profitable way of earning. Also, it is considered an important component of business strategy.
Moreover, Section 48 of the Indian patents act, 1970 prevents the third parties from the act of making, using, or selling the product without the permission of the patent holder.
Also read: Patent Filing Procedure in India
Why Patent Licensing?
A licensee makes the payment, also known as royalty to the licensor for using or selling the invention. Also, sometimes Royalty is known as a profit percentage. You may pay the royalty amount at once or pay a fixed amount at regular intervals. Moreover, you may calculate the amount as per the services and pay according to certain activities.
It is very important to add the termination policy to the license agreement. The agreement must not only have the time period for which the license is active but also a post-termination contract too. Also, you may grant a License to granted patents as well as to the applications that are patented.
Licensing helps to introduce the inventions to the markets. For example, a patent owner owns a business in a single geographical location and he wants to expand it further to new regions. Thus, he may license the product to other parties of that location in order to make and distribute the product. A licensing agreement helps in building a mutually-beneficial business relationship.
Also Read: Patent in India: Procedure for Grant
Patent Licensing: Types
The license type for a patent is based on the business requirements of the patent owner. There are two basic types of licensing. They are:
Exclusive Licensing involves the transfer of ownership to a third person or organization by the patent holder. It is like jumping into the shoes of the patent owner and taking over all the responsibilities. However, there is also a restriction for the licensee that he cannot handover the license of the patent to anyone else. The risk of infringement is less in this type of licensing because there is less number of license owners in the market. Thus, the cost of the product becomes higher and ultimately the revenue generated is also high. Therefore, it leads to higher payment of royalty to the Licensor from the licensee.
A non-exclusive licensing provides the same right to a number of licensees. It means a single licensee may make use of the invention along with the others who are provided with the same license for the product. Therefore, more than a single person/entity may make use of the patented product. Also, in these cases, the nature of the product is such that you have to licensee it to as many entities as possible in order to generate maximum revenue.
Also Read: Procedure for Patent Registration in India
Patent Licensing: Advantages
The other name for Licensing is technology transfer. The licensing agreement must contain all the terms and conditions for licensing that benefit the interest of both parties. The basic advantages of patent licensing are:
- An increase in the number of licensees builds up a healthy competition.
- You get a good number of targeted consumers because of the numerous distribution channels.
- You don’t need to worry about an upfront investment, plus you get an already generated product.
- The right to take complete commercial advantage of the patent.
- Increase in the market branches of the product.
- You may convert your project into a revenue-generating product.
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