The goal of any intellectual property (IP) strategic plan is to extract value from the IP assets. This can be accomplished in a variety of ways such as foreclosing competition through superior patent rights, which creates the ability to maximize gross profit margins; aggressively asserting intellectual property rights against third parties and collecting damage awards and, perhaps, enhanced damage awards; selling the technology outright; or donating the technology to a charitable or educational institution thereby creating a favorable tax advantage.
One of the most common methods of extracting value is through licensing. Corporate counsel and senior executives embarking on licensing programs should be aware of certain pitfalls that may result in costly disputes and the loss of patent rights.
License Technology or Patents?
The first step in any licensing program is to identify what technology the company wants to license. While this may seem axiomatic to the licensing exercise, many companies never bother to identify what technology should be licensed but rather, focus on which patents should be licensed. This may lead to the unhappy realization after the ink is dry that the company has licensed its core technology to the competition because it was embedded in one of its licensed patents.
Both core technology and non-core technology may be licensed. Core technology is defined as the technology that gives the company its sustainable competitive edge - that which is essential to the accomplishment of the business plan and is embedded in the majority of a company's products. Companies should think very long and hard about licensing its core technology.
On the other hand, non-core technology is ancillary to the business plan and is typically embedded in very few of the company's products. Non-core technology typically lends itself handily to licensing and/or sale but the process of identifying which patents exclusively cover non-core technology and do not cover any aspect of the core technology is still necessary to avoid surprises.
Make Sure You're the Owner.
Generally, under state law an employee's invention will be owned by the company unless the invention was made outside the scope of the employee's employment. However, under U.S. patent law, patents are filed in the name of the inventor and the inventor is presumed to be the owner of a patent application and any patent issuing therefrom unless assigned to the company. Consequently, if an assignment from the employee has not been recorded in the USPTO, the inventor remains the owner of record and may need to be contacted if the company desires to license or sell the patented technology and cannot produce a clean title.
As you can imagine, this is not an ideal situation to be in if an inventor dies or proves to be uncooperative due to post-employment issues with the company. Therefore, a company would be wise to have all employees execute an employee invention agreement in connection with commencing employment. These agreements should contain a power of attorney appointing the company to execute all documents necessary to effectuating the intent of the parties in connection with patentable inventions. This small step will ensure that ownership will reside in the company.
Likewise, a company should carefully identify technology ownership in the situations where an independent contractor was involved in research and development, or where two or more individuals or companies jointly own technology covered by a patent.
Clarify your licensing rights.
More pitfalls arise while negotiating and drafting the patent or technology license. For example, standing to sue or deciding who has the right to initiate a lawsuit against infringes is sometimes problematic especially when the parties are unaware of what rights impliedly derive from the license. An exclusive license has the right of joinder, which allows that party the right to force the licensor to join a lawsuit as a party plaintiff. This is an implied right, that is the exclusive licensee has the right whether it is affirmatively stated in the agreement or not. A savvy licensor would want to include a provision in the agreement regarding who is entitled to control the litigation.
Avoid Anti-Trust Pitfalls.
While being a "tough negotiator" is a prized moniker in the corporate world, in the world of jurisprudence it could lead to antitrust violations and the potential loss of patent rights if an overly aggressive licensor imposes certain restrictions on its licensees. Antitrust violations may arise under both federal and state antitrust law and loss of patent rights may arise if the licensing agreement is deemed to be a patent misuse. Problems often arise when the licensor dictates terms within the license agreement involving suggested resale price, territorial restrictions, and field of use restrictions. Show Me the Money. Perhaps the most frequently asked question with regard to license agreements is "What royalty rate should I charge?" The answer of course depends on what rights you have licensed and whether the technology is truly unique in the relevant industry. There are several approaches used to value technology including cost to develop, market approach, and net present value of a royalty stream. The key, however, is to understand what rights you have licensed. The royalty rate for a worldwide, exclusive license is worth far more to a licensee and commands a higher royalty rate than a territorially restricted or non-exclusive license.