How do I license a patent to a third party ?

A patent confers on its proprietor an exclusive right to exploit a technical invention. Its value goes beyond defence against competitors, because it is also an asset that can be put to work. Granting a licence under a patent to a third party is one of the most direct ways of doing so: the proprietor authorises a company or an individual to exploit the invention in return for payment, without giving up the right.

The patent licence, a contract of authorisation

A patent licence is the contract by which the patent proprietor, the licensor, authorises a third party, the licensee, to exploit the invention on terms defined in advance. The authorisation may cover the manufacture, use, marketing or import of the protected product or process.

A licence does not transfer ownership of the patent, which is what distinguishes it from an assignment. The proprietor remains the owner of the title and grants a right of exploitation whose scope depends on the terms of the contract. This flexibility explains why businesses use licences to make an invention profitable, enter new markets or build industrial partnerships.

Exclusivity and scope of the licence

Licences differ first in their degree of exclusivity. Under an exclusive licence, the licensor undertakes not to grant other licences within the same scope and, in most cases, refrains from exploiting the invention itself, depending on what the contract provides. A non-exclusive licence, by contrast, allows the proprietor to license several parties and to continue exploiting the invention. A licence may also be limited to a territory, a term or a field of use. A proprietor may thus authorise one partner to exploit the invention in Europe for industrial use, and license it to another for medical applications in Asia.

This division makes it possible to fit the licence to the business’s strategy, whether the aim is international growth, recurring revenue or technological cooperation. The restrictions chosen must remain compatible with the competition rules applicable to technology transfer agreements.

Granting a licence under a patent, the steps involved

Before granting any licence, it must be verified that the patent is in force, that its validity can withstand serious scrutiny and that the licensor is indeed its owner. A licence may also cover a patent application still under examination, with greater uncertainty as to the scope of the protection eventually obtained.

The process begins with a negotiation that settles the subject matter of the licence, its term, its territorial scope, the financial terms and each party’s obligations. These elements are then set down in a written contract, which the French Intellectual Property Code requires on pain of nullity.

The contract identifies the patent concerned and describes the rights granted, the term, the territories covered and any restrictions on use. It organises the consideration, which may take the form of a lump sum, royalties proportional to the turnover generated by the invention or a guaranteed minimum, and these formulas may be combined. It usually also deals with confidentiality, the quality of the products manufactured, the obligation of actual exploitation and the conditions for early termination.

Drafting the contract, the safeguard of the relationship

A poorly drafted licence breeds litigation. A precise contract removes ambiguity as to the scope of the rights granted. It protects the licensee, who invests in the technology with the assurance of being able to exploit it, as well as the licensor, who secures its revenue, prevents use beyond the authorisation and has the means to respond to any breach.

Recording the licence in the relevant register is strongly recommended. For a French patent, this is done in the National Patent Register kept by INPI. For a European patent application, recordal takes place at the EPO and, after grant, with the national offices for each national part of the patent, or in the Register for unitary patent protection kept by the EPO for a European patent with unitary effect. Although optional, this formality makes the licence enforceable against third parties and protects the licensee in particular if the patent is later assigned.

Licensing a co-owned patent

Where a patent belongs to several persons, the statutory co-ownership regime applies unless the co-owners have agreed otherwise. Each co-owner may grant a third party a non-exclusive licence for its own account, provided that it notifies the project to the others, who may object by buying its share, and fairly compensates those who do not exploit the invention. An exclusive licence, on the other hand, requires the consent of all co-owners or the authorisation of the court. It is therefore advisable to organise co-ownership by an agreement setting out the rules on management, decision-making and the sharing of revenue.

A licence that serves the value of innovation

Granting a licence under a patent allows a business to derive value from its research without itself undertaking the industrial or commercial exploitation of the invention. The transaction rests on a precise contractual balance, built from the negotiation stage onwards. Advice from an attorney during the negotiation and drafting of the contract largely determines its success, and a well-constructed licence then becomes a lasting driver of growth.