Patent Licensing: Another Revenue Stream for Your Business

By Aasheesh Shravah

Does your business conduct research and development? Does it have its own patents or pending patent applications? Or have you considered working with a partner that does to commercialize their invention(s)? Patent licensing is one way in which your business can gain an ongoing revenue stream.

If your business does not have its own research and development team, but has the capability to manufacture, market and sell products, consider finding a patent owner (without such capability) to be your partner in helping them develop and commercialize the technology. The terms of the deal could allow you to have the exclusive right to market, distribute and sell the products covered by the patents nationally or internationally, with payments to the patent owner based on your company’s sales of the product(s).

From the licensee’s perspective, licensing the patent can provide the licensee’s business the advantage of using the intellectual property without the expense and costs of research and development. In some situations, this is a better solution than trying to “work around” the patent since the product will be able to enter the market much more quickly. Both parties save since litigation never ensued. Acquiring a license to use the intellectual property also gives the licensee’s business a competitive advantage since the licensee is selling improved patented products its competitors cannot. A patent license also allows a business to tap into expertise (such as that of the inventor) that it may not have in-house.

In order to ensure a successful licensing program, one that is successful for both the patent owner and the licensee, it is important to keep certain considerations in mind at the outset: 

  • Should the license be an exclusive or a non-exclusive license? What are the benefits of each structure?

  • Does the licensee want or need the right to enforce the patent?

  • Does the business model anticipate the need to file foreign patents or continuation patents in the U.S., possibly obtaining broader intellectual property rights?

  • Does the licensee want or need the right to sub-license? In some applications, a limited sub-license may be necessary to ensure that the licensee’s customers are not infringing.

  • Does a purchase of the intellectual property make more business sense than licensing?

  • Have both licensor and licensee considered the tax implications of patent licensing?

  • Should a minimum royalty be assessed? Should the royalties be based on a fixed fee or a percentage of revenue?

  • Should the base revenue be the gross revenue or the net revenue? 

  • Have the parties discussed who will pay for product development costs and advertising and promotion?

  • Are domestic or world-wide rights being licensed? Has the business reviewed the foreign regulations on patent licensing in the countries in which it may sell or manufacture?

  • Does the patent license allow transfer of the agreement in all cases or just for closely held changes of control? Do buyouts (on both sides) require everyone’s approval?

The answers to these questions, and others, form the basis for the patent licensing agreement. By integrating these discussions with patent counsel and business advisors into your company’s best practices, your business has the opportunity to develop additional income and expand the reach of your business into additional marketplaces.

Aasheesh Shravah is Counsel at Tarter Krinsky & Drogin LLP in the Intellectual Property Practice. He manages intellectual property portfolios and procures domestic and international intellectual property protection for clients, including patents and trademarks. Understanding that IP due diligence is critical to business success, he reviews and analyzes products to determine potential patent protection, performs comprehensive studies of intellectual property portfolios, and provides guidance on creating/designing products that avoid potential infringement issues. His work includes patentability searches, freedom to operate opinions, drafting/negotiating licensing agreements and intellectual property litigation. He works with diverse technologies, including mechanical and electro-mechanical devices, hardware, consumer products (As Seen on TV Products), alternate energy systems and wireless mobile devices and communication systems.