By: Mark R. Malek
Sorry for the lack of articles on TacticalIP regarding basic IP rights, but duty called. I’m going to get back to the series of articles directed to some of the nuances of patent law. You may recall in my previous article on this situation I indicated that one option might be to enter into a mutually beneficial licensing agreement, or even a cross licensing agreement.
A licensing agreement (I am going to focus on patent licensing agreements for the sake of this article, but you should understand that it is possible to license any intellectual property) is one in where the patent holder grants the licensee (he/she who is the beneficiary of the licensing agreement) the right to make, use, sell, or offer to sell the invention covered by the claims of the patent. I’ll get into details of licensing agreements in another article but, in short, there is normally some sort of fee for the right to use the patent. These can be paid up licenses, i.e., the entire fee for the right to sue the patent is paid up front and the license is granted for a certain period of time. License fees can be paid per use, or as a percentage of sales, or any number of combinations.
Another option is cross licensing. This is when you and the patent holder license each other the rights to use one another’s patents. Why would you want to do this? Perhaps this is your best option. The reason why the patent holder is interested in your patent is because it is likely an improvement of the original. We all know that continued success in business does not come with one product. Sure, there are some one product wonders, but what happens to those companies that do not do anything else, or try to update their products? They are here today, gone tomorrow. A couple of examples off the top of my head – beanie babies and silly bands. Being a father of young children, I have seen these come and go…quickly.
In the case of cross licensing, the original patent holder sees value in what you are doing and is hoping to improve their product line by being able to offer a product that is improved. You may not want to be creating competition, but sometimes it may be your only option. There are ways to work such agreements so that everyone wins. For example, you can insert terms that you agree to a minimum retail price of the product (which prevents one party from drastically undercutting the price of the other party). You can also set up territories, or include a number of different terms to make sure that the cross-licensing agreement works more like a partnership.
My next series of articles will deal with some mischaracterizations of patent protection, and a discussion about how patents are NOT monopolies!