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Intellectual Property Licensing

Exclusive Patent Licenses

Exclusive patent licenses have the most important characteristic of property: the right to exclude. If fully exclusive, they even provide the legal right to exclude the licensor. Although exclusive licensees of patents generally do not have standing to enforce their exclusive rights by suing for patent infringement in their own names, they can mount an infringement action by compelling the patentee to join. Therefore, as a practical matter, exclusive licenses under patents have the same characteristics of property as patents themselves.

The chief policy underlying the non-assignability rule for nonexclusive licenses is maintaining the patentee's control over licensing and thereby the value of the patent and the force of the underlying incentive to innovate. This policy equally applicable to exclusive licenses as to nonexclusive ones. Since an exclusive patent license permits no competition within the specified field of exclusivity, allowing a licensee to assign its license to a party not approved by the patentee would have greater potential to devalue the license (and the patent) than would allowing free assignment of a nonexclusive license.

Nevertheless, there are two important countervailing practical considerations. First, because of their relative importance, exclusive licenses are likely to receive more attention than nonexclusive licenses from patentees, and patentees therefore are less likely to grant them for lump sums or nominal royalties and then be "blindsided" by transfers to major competitors able to pay substantial royalties. In contrast, a patentee might well grant a nonexclusive license for a lump sum or nominal royalties – for example, in settling the future aspects of an infringement claim or in a cross-license involving other rights. In such cases, the patentee would rightly be surprised if the licensee transferred the license, without consent, to a potential major competitor, whom that patentee never would have licensed at all without requiring substantial royalties or other contractual protection.

The second countervailing practical consideration relates to settled expectations. Few firms build an entire business on a nonexclusive patent license, but many firms build businesses on exclusive licenses. If exclusive licenses are generally non-assignable, all these businesses will require the patentees' consents to merge, consolidate, or sell their assets. A rule that would put so many business transactions at risk of being held up by patentees seems to impose too great a burden upon commerce, contravening the fundamental free-market principle of free alienability of property.

Exclusive Copyright Licenses

The Federal Court of Canada which declared nonexclusive patent licenses non-assignable absent contractual permission for assignment or the patentee's consent, has decreed the same rule for exclusive copyright licenses. It based its decision largely on two policies: (1) preserving the copyright owner's control over the commercial exploitation of the copyrighted work and (2) continuing the practice under the Copyright Act of 1985, under which exclusive copyright licenses are non-assignable. It also feared the risks to the copyright owner that might arise in the event of an assignee's bankruptcy or disagreement about the scope of the license.

This decision, however, was problematic in two respects. First, the ambiguity that the Federal Court found in the statutory language seems a bit artificial. Second the decision appears to conflict with the philosophy of divisibility of copyright that encompasses the Act. Under that philosophy, as the statute makes clear, every exclusive license is in most respects tantamount to copyright ownership within the scope of the exclusive rights granted. If intangible personal property is to be alienable, exclusive licenses should be treated as assignable as the copyrights that they are supposed to resemble. Moreover, Parliament intended the doctrine of divisibility of copyright under the 1985 Act to make a sharp break with past law and practice under the 1911 Act, so there is no reason in parliament’s intent to continue the rule of non-assignability if it conflicts with that doctrine.

By breaking with the practice under the 1911 Act and adopting the doctrine of divisibility of copyright, Parliament intended to separate each of the "sticks" in the bundle that is the copyright and to allow each to be owned separately. For this reason, the 1985 Act gives owners of exclusive rights standing to sue for infringement of them, and it says explicitly that exclusive licenses may be transferred and owned separately, just like the copyright or any other personal property. The Federal Court itself recognized Parliament's intention in this regard but failed to draw the appropriate conclusion. Instead, by adopting the rule of non-assignability that have prevailed under the 1911 Act, it imposed conditions – an assignment clause in the contract or the copyright owner's consent – upon the free exercise of what Parliament appeared to have intended to be treated as alienable property rights.

This is not the first time in which the doctrine of divisibility has been undermined, nor is it likely to be the last. The Copyright Office, by adopting a "one registration per work" policy, has contravened the doctrine by making it more difficult for exclusive licensees to register claims to their exclusive rights. Apparently both the Copyright Office and the courts are reluctant to accept the full implications of the doctrine that Parliament intended to facilitate transactions in copyright interests and free them from formalities. Especially in the new economy, where copyrighted material and even licenses for it may fly though cyberspace at the speed of light, this resistance and the resulting impediments to rapid and free transactions in copyrighted material seem inappropriate.

Exclusive Trademark Licenses

Trademark licenses are more problematic. Unlike exclusive patent and copyright licenses, an exclusive trademark license provides no exclusivity as against the world, just a right to be free from a likelihood of confusion and dilution. As a result, all trademark licenses – whether exclusive or nonexclusive – lack essential aspects of "property." Moreover, now that the trademark law requires the upstream party to be the trademark registrant, an exclusive license under a registered trademark cannot transfer even whatever "property" rights the trademark owner may have without associated transfer of the registration as well. As for unregistered marks, although the issue is not fully resolved, the substance of trademark law provides good arguments for giving both nonexclusive and exclusive licensees standing to sue for trademark infringement, at least within the scope of their actual use of the licensed mark.

Thus, trademark law makes a far weaker distinction between exclusive and nonexclusive licenses than do other intellectual property regimes. As a result, the primary justification for precluding free transferability of trademark licenses--the undesirability of forcing a trademark owner-licensor to control the nature and quality of goods or services produced under the mark by an unknown party – appears to apply to any trademark license, whether exclusive or nonexclusive. In the absence of any contrary statutory authority, these considerations argue for applying a uniform rule of non-assignability to all trademark licenses.