A patent inventor has several options in commercializing the patent and profiting from it. The patents’ commercialization policy is a comprehensive issue in itself, and requires long term attention and strategic thought. One of the main ways of commercializing a patent is by licensing another party to use the patent under certain conditions and in return for royalties.
At times, licensing agreements are made between joint inventors out of the purpose and understanding that the licensee has the needed knowledge and expertise to maximize and commercialize the patent rights in the most professional and efficient manner.
This article will review in short joint inventors’ right in patents, the main mechanisms specified in standard licensing agreements between joint inventors, and the guiding considerations prior to signing such licensing agreement.
Background
Recent decades have seen a growing awareness of the paramount importance of patents in maintaining a competitive edge in various markets. This awareness and the recognition of the main and essential role patents play in modern economy have lead to a significant rise in patent rights trading volume, when patent trading is made in various manners, mainly by the acquisition of patents and technology licensing to use the patent.
Patent use as an income tool has become very dominant in both business firms and government entities. Thus, most of the government institutes in Israel, such as universities and various research institutes have established companies specializing in the commercialization of intellectual property formed in them and its protection.
Parenthetically we shall note that when patent inventors are employees in various workplaces, those employees’ inventions are considered part of their work in that workplace and therefore the invention, though invented by the employee, actually belongs to the employer. The Patent Law 5727 – 1967 (hereinafter: “the Patent Law”) refers to such an invention as a “service invention”[1]. For example, should a doctor working at a hospital invent a patent in their field of work, due to their work and during it, ownership of the patent will belong to the hospital.
Sometimes, an invention is not made by one person only, but by a several inventors. Accordingly, when the invention is joint, say of an employer of a medical research institute and a third party that does not work in that institute, the research institute (despite the service invention) and that third party are considered joint inventors.
Chapter V of the Patent Law determines the instructions referring to the patent rights and obligations of joint inventors. One should note the instruction of paragraph 77(B) of the Patent Law, stating that in the matter of joint inventors’ patent rights, those inventors shall be regarded as owning equal shares insofar as no other distribution was determined in a written agreement or by law.
Licensing Agreements – Joint Inventors
In most cases, government research entities, whether universities or hospitals or other research entities, do not tend to develop their inventions into commercialize-able products\services and prefer that such commercialization be performed by external entities or the joint inventor.
It is important to note that paragraph 78 of the Patent Law states that in case of joint inventors, each of the joint inventors is authorized to use the invention in a reasonable manner without the need of the other inventor’s consent, provided that the other inventor was not denied use of the invention and if so, that other inventor will be entitled to demand proper royalties from the user. Therefore is it highly important to anchor the relationship between joint inventors in a written agreement.
Thus, and in order to fully commercialize the patent, licensing agreements are made between the government entities and the joint inventor (or external entities insofar as there is no joint inventor), under which the government entity grants the joint inventor a license in their share of the invention for the continuation of the product\service subject of the invention’s development and commercialization.
Such licensing agreements anchor the relationship between the licenser (the government entity) and the licensee (the joint inventor) and include a wide variety of terms, such as: licensing period (often long term agreements), its scope, royalties and fees in various cases, milestones the licensee is required to meet, instructions regarding agreement termination etc.
One of the focuses in licensing agreements between joint inventors is made on the parties’ consents upon agreement termination.
So, for example: in an “ordinary” licensing agreement (not between joint inventors), upon agreement termination the licensee, obviously, is no longer authorized to make any use of the invention.
Contrary to the above, upon the termination of a licensing agreement between joint inventors, and without any other consent between the parties, the parties basically return to the Patent Law’s instructions regarding their joint patent rights in the invention and its use. As mentioned above, the Patent Law instructions determine that each of the joint inventors is authorized to use the invention as long as the other inventor was not denied its use, and if so that other inventor will be entitled to demand proper royalties from the user.
It is important to note that in order to reach an invention’s optimal commercialization, the party wishing to use the invention should be authorized to use all of the rights in the invention and not only part of them. Obviously, commercializing only part of the rights in the invention is not an attractive move for various reasons, such as: granting license to other third party requires the consent of all the joint inventors; the other inventor is also authorized to use and commercialize the invention, and therefore there is great difficulty in determining the useable rights by each party etc.
Therefore, and in order to provide for a case in which after the licensing agreement termination a joint inventor wishes to make further use of the patent, subject to the instructions of the above paragraph 78 of the Patent Law, the license agreement sets in place mechanisms anchoring the invention use rights by each party even after the license agreement is terminated.
So, for instance, one of the popular mechanisms in joint inventors licensing agreements is that upon the license’s termination due to its breach by the licensee, the breaching party irrevocably undertakes to give the other party an exclusive license in his share of the patent, i.e. in all of the invention rights, to use and commercialize the invention in any way, including by commercializing it to third parties.
In this case, a significant question obviously arises regarding the breaching party’s entitlement to royalties due to use of the invention, a question we shall leave open in this article of ours.
In closing
Technology licensing agreements are complex agreements that include stipulations and instructions in various aspects, including commercial, financial and legal aspects. Within a licensing agreement between joint inventors, the parties contract in order to award one party the license to use all of the invention rights in return for royalties to the other party, out of the purpose and understanding that the licensed party will know how to maximize and commercialize the patent rights in the most professional and efficient manner.
Signing such a licensing agreement forms a long term relationship between the licenser and licensee (the joint inventors), and therefore it is important to create reliable and clear mechanisms that will safeguard each of the parties’ significant interests and award them effective tools of maximizing their benefits from the agreement.
[1] An invention made as part of a person’s work in a certain organization, referred to in the Patent Law as a “service invention”, belongs to the employer under the Patent Law, provided there is no other agreement between the parties regarding it or a waiver by the employer. According to ruling, the term “service invention” has four foundations: there is a work relationship; an invention was invented; it was invented during service; it was invented due to service.