Licensing patent rights

22.4 As discussed in Chapter 5, the grant of a patent confers upon a patent holder the exclusive right to exploit an invention, or to authorise another person to exploit an invention, during the patent term.[1] A patent holder may license any or all of its patent rights to a third party.[2] A licence of a patent does not transfer ownership of the patent rights, as is the case if a patent is assigned; rather it establishes terms upon which a third party (the licensee) may exercise specified patent rights without such use constituting infringement.[3]

22.5 A licence to exploit one or more gene patents may be a stand-alone transaction or part of a larger commercial arrangement. Patent licences are frequently involved when establishing a spin-off company, a joint venture or a strategic alliance. Patent licences are also typical in collaboration and consortium arrangements, sponsored research agreements, and manufacture and supply agreements.

22.6 Patent licence agreements may be divided into two categories: ‘in-licences’ and ‘out-licences’. An in-licence is an agreement by which a party acquires the rights to use a patent. An out-licence is an agreement by which a patent holder grants the right to use a patent to a third party.

22.7 The decision to license gene patents may be based on a number of factors.[4] Licensing arrangements allow companies to exchange resources and information, thereby reducing research and development expenditure and time delays in bringing a product to market. Licensing of patent rights may also be necessary to gain access to domestic or foreign markets, by providing access to manufacturing facilities or distribution networks without additional expense, or lowering the cost and risk associated with entry into a market through partnership with a more experienced entity. A company’s strategic patent licensing may also result in the establishment of profitable, long-term alliances leading to future research collaborations. A patent licence may provide a company with access to significant third party intellectual property, or provide a means of avoiding or settling patent litigation—particularly where an agreement involves cross-licences of patent rights among competitors.

Types of patent licences

22.8 A licensee may be granted exclusive, sole or non-exclusive rights to a gene patent. An exclusive licence provides that only the licensee (and, where permitted, persons authorised by the licensee) may exploit the rights licensed under the agreement—even the patent holder is prevented from exploiting such rights.[5] Exclusive licences may be limited to a territory (for example, a particular country or group of countries), to a particular field of use, or to a specified period of time. A patent holder may, therefore, retain the right to exploit the invention in other territories or fields of use, or to license patent rights to a different entity, perhaps also on an exclusive basis.

22.9 A sole licence permits both the patent holder and a licensee to exploit a patented invention, but prevents the patent holder from licensing the rights to any other entity. A non-exclusive licence allows the patent holder to license some or all of the rights under a patent to an unlimited number of third parties, and also to retain the right to exploit a patented invention itself. Like exclusive licences, licences that authorise the use of gene patent rights on a sole or non-exclusive basis may be restricted to a particular territory, field of use, or period of time.

Common terms in patent licences

22.10 The Patents Act 1990 (Cth) (Patents Act) does not specify any formalities that must be satisfied for a patent licence to be valid and enforceable. However, as a matter of commercial practice, the terms of a patent licence are typically set out in a written document executed by the parties to the agreement.

22.11 Patent licences usually address the following matters:[6]

  • licensed property—identifying the particular patents and patent applications subject to the licence;

  • territory within which the licensee may exercise its rights;

  • scope of rights granted—whether exclusive, sole, or non-exclusive, and any restrictions on the use of the licensed patent rights (for example, restrictions on the right to sub-license, or rights retained by the licensor);

  • duration of the licence;

  • financial terms—such as licence fees,[7] payment terms and liability for taxes;

  • termination of the licence;

  • obligations of the licensor—for example, maintenance and enforcement of the licensed patent rights, continued prosecution of relevant patent applications, and provision of technical assistance and know-how related to the inventions covered by the licence;

  • obligations of the licensee—such as performance obligations to exercise best efforts to develop and exploit the technology covered by the licence;[8]

  • ownership of (and the right to use) any intellectual property that may arise from activities conducted under the licence—for example, improvements on, or new applications for, inventions covered by the licence, and new inventions that may be developed;

  • reversion of rights in the licensed patents—for example, upon termination of the licence, or upon failure of the licensee to satisfy performance obligations stipulated in the agreement;

  • reporting and record keeping requirements—including the ability of the licensor to conduct periodic audits of the licensee’s records;

  • confidentiality obligations; and

  • responsibility for liability claims—typically addressed in the form of indemnification provisions covering issues such as patent infringement and product liability claims.

22.12 While most patent licences address the issues identified in the preceding paragraph, parties to a licence typically negotiate the precise terms of the arrangement, including the scope of the licence granted, the obligations and liabilities of each of the parties, and the quantum and terms of payment. These negotiations will be influenced by a number of factors, including: the nature of the technology being licensed, the identity and business of the patent holder and potential licensee, the proposed use of the patented technology, and revenue considerations. The way in which these factors affect licences of Australian gene patents is considered in the following section.

[1]Patents Act 1990 (Cth) s 13(1). A patent holder’s right to exploit its invention is not absolute; it may be subject to other legal requirements, as well as earlier patents not owned by the patent holder.

[2] Any licence of a co-owned patent requires the consent of all patent holders: Ibid s 16(1)(c).

[3] However, the grant of an exclusive licence may carry with it some of the indicia of ownership: see Ibid ss 103, 120(1), 187.

[4] For a general discussion of the relevant factors, see Biotechnology Australia, Biotechnology Intellectual Property Manual (2001), Ch 8; Department of Foreign Affairs and Trade and AusAID, Intellectual Property and Biotechnology: A Training Handbook (2001), Module 9; D Nicol and J Nielsen, Patents and Medical Biotechnology: An Empirical Analysis of Issues Facing the Australian Industry (2003) Centre for Law and Genetics Occasional Paper No 6, 97–99.

[5]Patents Act 1990 (Cth) sch 1.

[6] This list is not comprehensive and is intended only as a guide to issues that a patent holder may wish to regulate by licence.

[7] Licence fees may be structured in a number of ways and may include payments in one or more of the following forms: royalty payments, fixed fees, minimum guaranteed payments, and milestone payments.

[8] An agreement may also provide that a licensee is responsible for matters that are typically the obligation of the licensor—such as maintenance and enforcement of the licensed patent rights—particularly if patent rights are licensed on an exclusive basis.