1. Limiting the Bundle of Rights
While the rights granted by patent include the right to exclude others from making, using, selling, and offering for sale the invention claimed by a patent for a given time, a patent owner may choose to license only a subset of this bundle of rights. Broadly, the scope of a license has three categories with which a licensor must be concerned: (1) which of the rights to make, use, and sell it will grant; (2) the geographic scope of the rights to be granted; and (3) the time period for the grant of the rights. For example, a patent owner may license a manufacturer to make the patented invention while reserving the right to sell the invention. This scenario is quite common when a patent owner does not have the manufacturing capacity to make the invention in a commercially viable manner. Similarly, a patent owner may license the rights under the patent for less than the full term of the patent. The term of such an agreement may be determined by time or may be contingent upon later actions or occurrences, such as sales in excess of a certain amount. A patent owner may license rights with a restriction prohibiting sublicenses to third parties. This might occur in the software industry, for example, when a licensor enters into a licensing agreement and wishes to prevent the release of its proprietary information to third parties.
2. Provisions of a Patent License
Typically, a patent license is a hybrid agreement in which proprietary information and rights are licensed in addition to the rights granted by one or more patents. Patent license must clearly and accurately define the rights that are licensed by the terms of the agreement. If the license is for patents only and is not to include other, unpatented, information, a simple list of the patents may suffice. On the other hand, if the license is to include all information required to allow another to manufacture an article, a broader definition of the property to be licensed may be required. In such a case, a separate definition of licensed patents and licensed information will likely be used. Parties should recognize that a definition of patents licensed may need to include rights other than issued patents, such as pending patent applications, patent applications related to other applications or patents (including continuations, continuations-in-part, divisional, reissues, and re-examinations). Similarly, in many technological areas, patent licenses will have to address ownership of future inventions based on, and unpatented improvements of, the licensed technology. At the very least, the patent license agreement should be clear as to whether ownership of future inventions and improvements will vest with the licensor, the licensee, or jointly. Often, ownership will depend upon which party made the later invention or improvement. The Patent Act provides that '[a] patentee' is entitled to bring a civil action 'for infringement of his patent.' These provisions have been interpreted to require that a suit for infringement of patent rights ordinarily be brought by a party holding legal title to the patent. Even if the patentee does not transfer formal legal title, the patentee may effect a transfer of ownership for standing purposes if it conveys all substantial rights in the patent to the transferee. Thus, the right to sue in a licensing context is, for the most part, dependent on the terms of the license and the bundle of rights granted according to its terms.
Broadly speaking, patent cross-licensing is the mutual sharing of patents between patent holders that grant each the right to practice the other' s patents. Cross-licenses can vary in scope, for example, by providing for fixed fees or running royalties that flow in one or more directions or provide for no compensation at all to the parties. In addition, cross-licenses can contain geographical restrictions and may involve the parties' use of as few as two patents (one from each of the parties) to a specified number of patents to even an entire portfolio. Patent cross-licensing can be created in several ways. At least two owners holding different patents are required to enter into the agreement, but there is no per se restriction on the number of parties that can be a part of the license. Furthermore, the licenses may be entered into at varying stages and under different circumstances. For example, the owners of two separate patents might enter into a cross-license agreement in a situation where they could not proceed with the practice of their respective patents because to do so would infringe on the other's patent in the absence of a license. In such a scenario, the patents are in a "two-way blocking relationship." This two-way blocking relationship may be encountered when the holder of a "pioneering" patent and owners of other "improvement" patents may find that without each other's assistance, they cannot continue further with their respective patents. By employing a cross - license, the resulting portfolio may be worth more in the aggregate than the value of the individual component parts (i.e., the separate patents), which, standing alone, may be of no value, monetarily or otherwise, in certain situations. When entered into amicably and prior to any dispute, cross-license agreements can prevent expensive and protracted infringement litigation. Sometimes, however, a patent cross-license may be the result of a settlement of a litigation between parties arising from a dispute over conflicting claims or allegations of infringement. Cross-licenses may produce many benefits to the parties, including the reduction of variable costs, most notably transaction and production expenses, as well as those costs associated with litigation. In addition, cross-licensing can provide the parties with access to other and often new ideas, which, in turn, may promote research and development.