When can I license my invention?
A license is a legal permission for someone to use something that you own in exchange for some other consideration, usually money. You can license your invention as soon as someone will pay you for that permission; normally, of course, this requires that the permission is needed in the first place. For example, if you hold a patent on an invention, permission is required, but it is possible and quite common for sole inventors to license their products prior to receiving a patent. The reason someone might be interested in licensing your patent application prior to your patent being issued is that once the patent application issues into a patent, the user of the technology will need a license anyway, and in order to create business certainty – that is, the right to continue production once the investment to start a product line has already been made – it is often very advantageous to gain that permission prior to the initial investment, which might occur prior to the actual issuance of the application into a patent.
Another reason that a licensee may want to license an invention prior to the application being issued is that often an unissued patent application can be licensed at a lower fee than might be the case if the patent has already been issued.
Unless more is granted with the license such as trade secrets and know-how, or some other protected rights such as copyright or trademark, the license will expire if the patent application is no longer pending and no patent has issued. So in licensing your technology to a third party, it is often very important to include a license not only to the patent, but also to a license for any trade secrets and know-how that might go along with that patent to support that license, in the event that the patent does not issue.
Licensing Trade Secrets
It is also possible to license trade secrets – that is, business know-how or a business secret that enables someone to gain a business advantage by virtue of knowing it. When I was in law school, I remember one professor telling his students about a case in which one enterprising licensor approached a business and offered to tell them a guaranteed method of increasing profits in exchange for one quarter of any increased profits earned. To the business this seemed like a no-brainer – a chance to increase profits while being able to retain three quarters of all profits earned – so the business agreed to the license. When the actual licensors signed the agreement and documents were exchanged, the licensor advised the business that the trade secret was, in fact, raising prices. The law professor said that the judge chastised the business for foolishly entering into such an agreement; however, he made the business pay the 25% increase the next time they had a price hike. The moral of the story is that anything of value can be licensed, and not necessarily because a patent has been issued on it.
There are two major parts to a licensing contract: the first part of the agreement is a description of what the parties expect to do as a result of entering into the license agreement with each other, and the second part describes what happens in the event that the first part does not work out. So in any license agreement that you enter into, contemplate not only what the expectations are in terms of deliverables and payment, but also understand what happens if expectations are not met and either the expected sales are not achieved, or the technology that is being licensed does not achieve its desired purpose.
It is often very helpful to have a lawyer review license agreements before entering into them, to help you avoid the problem faced by our hapless business owner who gave up 25% for the privilege of learning that raising prices would help with profitability.
Contact John Ferrell at JFerrell@carrferrell.com if he can further assist you.
About the Author
John Ferrell is a founding partner of Carr & Ferrell LLP, one of Silicon Valley's foremost technology law firms, and specializes in patent and intellectual property law matters. He is the Chair of the firm's Intellectual Property Practice Group.