Patent licenses can seem confusing or scary. Therefore, one helpful way of clearing up the confusion is to dive right in and examine what a real, actual patent license looks like and consists of. In this article, we’ll look at the most vital elements of a patent license and explain what each section means in plain, non-legalese English.
A Sample Patent Licensing Agreement in Plain English
Here is the URL to the full text of the patent license we are referencing: http://contracts.onecle.com/occulogix/brunner.lic.2004.10.25.shtml.
THIS AGREEMENT (the “Agreement”) is made by and between OccuLogix, Inc.
(formerly Vascular Sciences Corporation), a Delaware Corporation (the
“Licensee”), and Prof. Dr. Richard Brunner (“Brunner”) living in Germany and
listed as inventor along with Prof. Dr. Helmut Borberg (“Borberg”) in US patentapplication 09/000,917, which is the parent application of US letters patent 6,245,038 issued June 12, 2001 (the “Patent”).
This is what every patent license starts out with: a clear identification of the people who are making this agreement and who will be bound by what it says. This paragraph names OccuLogix as the “licensee” (the person or entity the patent is being licensed to) and Prof. Dr. Richard Brunner, who is normally called the “licensor.” The licensor is the person or entity who holds the patent and choosing to license it to the licensee. This opening paragraph is the bedrock of any patent license, and vagueness here will only spell problems for later, “high-stakes” clauses like royalty requirements or performance obligations.
1. Patent Rights. Shall mean any and all of Brunner's rights, title,
ownership and interests in and to US letters patent 6,245,038 and any and all
inventions, modifications, continuations-in-part, extensions, divisions,
improvements, etc. made by Brunner or his agents, in any and all areas that
relate directly to the Patent, regardless of whether such inventions or
improvements are patentable or may become patented; all inventions,
modifications, continuations-in-part, extensions, divisions, improvements,
etc. shall automatically be incorporated herein without the payment of any
additional fees, royalties or any other compensation or considerations of
A vital aspect of patent licenses (and all legal documents) is defining what you mean when you say things like “patent rights.” For this reason, terms that are likely to be used over and over throughout the license are defined early on. In this case, the license defines “patent rights” to basically mean all the rights granted by law to patent holders. It goes on to specifically define the patent in question as patent 6,245,038 and anything created as a result of it. By spelling all of this out up front, in crystal-clear detail, the term “patent rights” will be interpreted without confusion if the agreement ever needs to be enforced.
2. License Grant. Brunner confirms that he has exclusively licensed,
and does hereby continue to exclusively license, in accordance with the terms set
forth below, unto Licensee, Brunner's entire undivided right, title,
ownership and interest in and to the Patent and the Patent Rights,
throughout the Territory, to be held and enjoyed by Licensee the same as it
would have been held and enjoyed by Brunner if this Patent License and
Royalty Agreement had not been made and entered into. The exclusive license
granted herein also includes an exclusive right for the Licensee to grant
expressly or implicitly, directly or through its subsidiaries or
affiliates, sublicenses to the Patent and the Patent Rights without the
requirement to pay any additional royalty fee or sublicense fee to Brunner,
to end users of the patented method including medical practitioners and
This clause specifies that the licensee will be receiving a complete, unclouded interest in the patent and the ability to do with it what he sees fit, within the conditions of this license agreement. It means that unless something has been explicitly forbidden of him, he is free to capitalize on the patent in a manner of his own choosing without seeking permission from the owner/licensor of the patent – in this case, Professor Brunner. This prevents Brunner from trying to drag the licensee into court after the fact demanding additional royalties or sublicense fees that are not provided for in the license.
5. Advance Royalty Payments. Licensee agrees to pay Brunner Fifty Thousand
Dollars ($50,000 USD) annually as an advance and credited against any
and all Royalty Payments paid in accordance with this Agreement.
Such Advance Royalty Payments shall be non-refundable and be paid to Brunner
and in equal payments of Twelve Thousand Five-hundred Dollars ($12,500 USD),
made quarterly, on or before the expiration of Forty-five (45) days after the
reporting close of each prior calendar quarter.
This clause begins to define the royalty payments that will change hands – from the OccuLogix to Professor Brunner – as a result of this agreement. Note the unmistakable specificity of the clause. It specifies how much is to be paid ($50,000), in what increments it is to be paid (equal payments of $12,500), and when it will be paid (45 days after the close of each prior calendar quarter.) This is exactly what you want to shoot for in your patent license, as it eliminates any confusion or dispute about the size and frequency of royalty payments.
7. Sublicense Fee. In instances where Brunner has consented to a
sublicense t0 the Patent and the Patent Rights from Licensee to a third
party who is not an end user of the patented method, Licensee agrees to
pay to Brunner a sublicense fee constituting a non-refundable cash payment
equal to Twelve-and-a-Half Percent (12,5% in USD) of any:
(i) Upfront cash payment made to Licensee in consideration of the
(ii) Sublicense fees received by Licensee in consideration of the
(iii) Premium over the fair market value of equity investments in
Licensee in consideration of the sublicense; and
(iv) Non-cash consideration received by Licensee from a sublicense in
consideration of the sublicense, such consideration to include,
without limitation, equity in other companies and the value of any
license granted to Licensee.
This clause specifies what happens if OccuLogix sublicenses the patent to someone who is not a customer or end user of the patented technology. By clarifying this up-front, the likelihood of any future dispute or litigation arising from sublicensing the patent is dramatically lowered. It is always better to provide for what happens in these scenarios, in writing, instead of waiting to duke it out in court after the fact.
9. Failure to Pay by Licensee. Should Licensee fail to make any payments as
required herein, and should the Licensee fail to cure the breach created
thereby, any and all rights, title and ownership to the License provided
to the Licensee under this Agreement shall be forfeited and any and all such
rights, title and ownership to the License shall, upon notice of the
failure to cure the breach, immediately revert to Brunner, and all monies paid
by Licensee until such date shall be retained by him without forfeiture.
To be sure, this patent licensee specified exactly what will occur in the event that a payment is missed or not made. This is also highly advisable for anyone writing their own agreement (which we don’t recommend). Working with a patent attorney with experience in patent licensing can help you protect the downside risks for both parties. This sample patent licensing agreement overview is not legal advice.