At the global level, patents are crucial for the growth of business and other commercial sectors, giving the inventors exclusive intellectual property rights conferred by the administrative body as an accomplishment of their valuable inventive contributions that are leveraged strategically for their economic benefit through patent licensing agreements.
Patent licensing, in particular, is an integral part of legalizing and granting permission by the patentee (also known as licensor) to another entity or party that acquires the license (known as the licensee) for extracting mutual benefits by selling and using the licensed product between both parties before the expiration of the granted patent.
Here, both parties, i.e., the licensor and the licensee, receive mutually equal commercial benefits in the shape of profits and/or royalties through utilizing patented goods and/or processes on a large commercial scale. More specifically, patent licensing offers the patent owner a way to capitalize on such patented rights by allowing other inventors and/or various organizations (licensees) to use the patent invention on terms and conditions agreed upon in the presence of legal counsel.
This not only encourages the sharing of innovation between both parties but also adds financial value to the patent owner. To gain involvement in intellectual property rights at the commercial level, it is essential to look into the concept of patent licensing agreements within the legal framework that has been established to suit specific financial needs and the nature of the economic relationship between the patent owner and licensee.
PROCEDURE FOR GRANTING A PATENT LICENSE:
1. Documentation of the signed agreement between the parties:
In respect to Section 68 of the Indian Patents Act 1970, the agreement for patent licensing between both parties (licensor and licensee) is executed in a written format wherein the agreement entitles some terms and conditions, including technical aspects of the patented product, the purpose of the license, validity of the agreement with a specific time duration, mode of payment (royalties) between both parties and availability of remedial measurements for both parties in case breaching or infringing of licensing terms takes place through any one of the parties.
2. Registration of mutually signed license agreement in the Indian Patent Office:
Upon the validation of the license agreement, the Indian law imposes on the licensee to execute a mandatory step for registering the title or interest in patented products and/or processes in the prescribed manner before the Patent Office within six months from the date of the written agreement under the guidance of an authorized legal representative. The registration process is carried out in a legalized form under Sections 69(1) and 69(2) of the Indian Patents Act 1970, which outline the process for registering the title or any interest of a patent by any individual(s) who is/are entitled as a licensee in the written format before the honorable authority. For the same, under Rules 90 and 92 of the Indian Patents Rules 2003, an application for Form 16 is filed before the honorable authority for registering the title or any interest in a patent, along with a signed license agreement between both mutually agreed-upon parties. The resolution behind the registration steps confers legal validity and enforceability upon the license terms and creates the agreement within the public record, thus mitigating the primary risks associated with alleged claims from unknown third parties.
3. Evaluation check by the Patent Office:
After both parties have duly completed the registration process, the Patent Office verifies the agreement upon reception, and upon reviewing, the Patent Office shall record all the essential details regarding the license agreement along with supporting documents involved during the patent registration under Section 67 of the Patent Act, 1970. In the case of an unregistered patent license agreement, the legal authorities shall declare the agreement to be invalid as per the related proceedings.
CASE LAW:
A relevant verdict by Delhi High Court on “Sergi Transformer Explosion Prevention Technologies Pvt Ltd. vs. Kumar Pratap Anil and Ors” was issued on 16th April 2014 under the compulsion of Sections 68 and 69 of the Patents Act, 1970.
Factual background:
The Plaintiff (Sergi Transformer Technologies Pvt. Ltd.) filed an infringement suit against the Defendants (Kumar Pratap Anil & Ors) for a granted patent pertaining to “Method and Device for Preventing and Protecting Electrical Transformers against Explosion and Fire.” The said plaintiff has also claimed to be the exclusive licensee of the above-mentioned patent by virtue of a license agreement dated 1st August, 2006; furthermore, the plaintiff has also asserted to initiate the process of license agreement registration with the Patent Office in Kolkata on 15th March, 2010. However, the defendants had filed an application under Order VII Rule 11 along with Section 151 of the Civil Procedure Code, 1908 (CPC) for dismissing the agreement, stating that the registration has not been recorded within 6 months from the date of the agreement, i.e., 1st January 2007, and the application has been stated as a back-dated document in accordance with Section 69 of the Patent Act, 1970. In compliance with the same, the plaintiff argued that the application cannot be rendered null and void since a license agreement has been duly signed between both parties and the same has been written to the Controller under Section 68 of the Patent’s Act, 1970. Moreover, no further information is stated under the provision of Sections 109 and 69 of the Patent’s Act, 1970, for any time stipulation for filing the application before the patent office for registration of the license deed under the post-amendment of the Act (post-amendment in 2005).
For the same, the Delhi High Court, relying on the judgment of the Supreme Court in Liverpool & London S.P. & I Assn. Ltd. v. M.V. Sea Success, stated that no relevancy has been taken into consideration for pleadings in the written agreement initiated by both parties under Order 7 Rule 11 of the CPC. Moreover, in accordance with the pre- and post-amendment of Sections 68, 69, 109, and 110 of the Patent Act 1970, the Delhi High Court further clarified that the validity of license or agreement assignment as evidence shall be accepted unless the license or agreement is recorded in writing before the controller or any court for its acceptability for patent licensing. Thus, the court specified that unless the agreement is registered under the observation of the Patent Office, the license agreement shall not be considered as a shred of evidence in the court.
In light of the aforementioned case, a clear indication has been made by the Court for the registration of a license agreement with the patent office at the stipulated time line i.e., within six months from the date of the agreement, as a mandatory process for uninterrupted business operations with no sign of any potential infringement or legal issues in the near future.
TYPES OF PATENT LICENSING:
Depending upon the concept of Indian patent licensing and its nature, different types of patent licensing are enlisted below:
1. Exclusive License:-
In Exclusive licensing, all the sole ownership and the patent rights of the patentee (licensor) are transferred to another party or entity (licensee) as an authorized person, except that the title of the patented invention still remains with the licensor. Along with that, an exclusive license is solely granted to the licensee, and he or she is prohibited from further transferring the exclusive rights of the License to any third party. In regard to the same, Section 2(f) of the Indian Patents Act, 1970 defines an ‘exclusive license’ as “a license from the patentee which confers on the licensee, on the licensee and persons authorized by him, to the exclusion of all other persons (including the patentee), any right in respect of the patented invention, and the exclusive licensee shall be construed accordingly”. Thus, the scope of patent infringement is minimal as the patent rights are efficiently owned by the licensee in the market.
2. Non-exclusive License:-
Under a non-exclusive license, the patent holder transfers the patented rights to the licensee as a mutually agreed-upon decision. However, these patented rights are not exclusive, as the licensor may also grant exclusive permissions for selling and/or manufacturing the patented product to other well-established commercial entities or parties. Thus, the licensee fails to have any exclusive rights to monopolize and commercialize the patented invention, and is only entitled to obtain financial benefits in the registered license agreement.
3. Sub-License:-
In the Sub-License, the patent holder transfers their patent right to the licensee. Subsequently, the licensee may share the patent rights with other well-known commercialized entities or parties as a sub-licensee operating in a similar field of art. This arrangement enables the licensee to access a bigger opportunity in the global market with the help of the sub-licensee, without any requirement for exclusive permission rights from the patentee for the sub-licensing.
4. Cross-License:-
Under cross-licensing, two or more inventors with similar patented inventions from the same industrial field share their innovative patented and/or claimed technologies among themselves as a collaborative party, avoiding filing infringement cases in near future among themselves while maintaining their freedom to promote their essential commercialized product in the market with no monetary royalties attributed to each other. For startups and small businesses with limited capital infrastructure, cross-licensing offers a vital, mutually beneficial arrangement with well-established companies, allowing access to their significant R&D investments and enabling the startups and small businesses to compete in the global market against giant enterprises.
In addition to that, cross licensing allows various business intellectuals to develop new and innovative patented products by sharing their pioneering ideas among themselves in a collaborative approach. This approach presents a non-monetary agenda between both collaborating parties without any provocative legal actions taken against each other, maintaining a competitive edge in the global market against other competitors, aided by the availability of financial support for their developed innovative product.
Real-life examples:
1. Apple and Microsoft: In 1997, Apple Inc. signed a patent cross-licensing agreement with Microsoft Corp., ending their long-running legal dispute. Under the terms of the agreement, Apple agreed to license some of its patents, and in turn, Microsoft mutually agreed to pay an ample amount as royalties to Apple. In addition to that, the agreement also specified mutual cooperation from both companies for their future projects, which would prove to be a significant benefit to both companies.
2. Samsung and Google: In 2014, Samsung Electronics and Google Inc. entered into a global patent cross-licensing agreement that encompassed a huge range of innovations in business areas and provided easy access to each other’s patent portfolios.
3. Nokia and Oppo: In January 2024, Finnish telecom gear maker Nokia signed a 5G patent cross-licensing agreement with Chinese device maker Oppo while resolving their multiple patent litigation between both companies and availing financial benefits for their technological innovation in the market.
5. Voluntary License:-
In a voluntary license, the patent owner (licensor) willingly offers a license agreement to the licensee (which can be an individual or a different organization body) from any country on an exclusive or non-exclusive basis, providing accessible rights for manufacturing, importing, selling, or distributing patented pharmaceutical product in the global market at an affordable rate to the low-economic public communities under mutually agreed-upon agreement. Unlike the direct intervention of the third party (the government) in specific circumstances stated as per the compulsory licensing, voluntary licensing is based on negotiations and arrangements between both mutually involved parties. Here, the voluntary licensing also allows the patentee to expand their global market reach and mutually generate financial support between both parties, with no direct involvement of any third party (the government) under any specific circumstances.
In addition to that, voluntary licensing enables licensees (mainly start-ups and/or small companies) with limited capital investment and research capabilities to access an extensive competitive edge in the market through cutting-edge technologies. Thus, a collaborative approach between both parties leads to developing and improving generic products, resulting in an overall increase in economic growth.
One of the most significant impacts of voluntary licensing agreements is in the field of the pharmaceutical industry, where they play a vital role in providing easy accessibility and affordability to the public residing in underdeveloped countries. Through voluntary licensing, various global pharmaceutical companies (patentees) offer voluntary licensing agreements to generic pharmaceutical manufacturers in underdeveloped countries for manufacturing and selling the generic version of a patented invention to the public at nominal prices. Thus, voluntary licensing enhances the accessibility of producing and distributing generic-level patented products to the public at an affordable price with no involvement of any third party.
Recent collaborative cases related to voluntary licensing agreements between global pharmaceutical firms and local generic manufacturers are enlisted below:
• Gilead Pharmasset (US pharmaceutical manufacturers) and nine Indian pharmaceutical manufacturers (Zydus, Cipla, NATCO, Mylan, Abbot India, Dr. Reddy’s Laboratories, Hetero Healthcare, Ranbaxy and Biocon) for manufacturing generic version of patented hepatitis C drug ‘sofosbuvir’.
• Strides Acrolabs Ltd. (Indian company) and Gilead Sciences Inc. (US pharmaceutical manufacturers) for manufacturing HIV/AIDS drug ‘Emtricitabine’.
• F Hoffman La Roche Ltd (Swiss drug maker) and Emcure Pharmaceuticals Ltd (Indian company) for manufacturing three patented cancer drugs under the local regime.
• MSD Pharmaceuticals Pvt. Ltd. (global healthcare manufacturer) and Sun Pharmaceuticals (Indian pharmaceutical) for locally manufacturing two patented type 2 diabetes drugs, sitagliptin and sitagliptin plus metformin.
• Novartis AG and Lupin for manufacturing and selling Novartis’ patented drug ‘Onbrez’ during chronic obstructive pulmonary disease (COPD) treatment.
6. Compulsory License:-
Under unforeseen circumstances, a compulsory licensing agreement is generally permitted for a third party (mainly the government) to grant a non-exclusive license to the licensee for manufacturing and selling the patented product of the patentee in their geographical domain at a reasonable rate without the patentee’s consent under Sections 84 and 92 of the Indian Patent Act 1970. As per Section 84(1) of the Indian Patent Act 1970, any interested party (licensee) may apply for the compulsory license before the Patent Office after three years of completion from the date of patent grant by filing Form 17 under certain grounds:
• Non-fulfilment of easy accessibility to the public;
• Non-availability of affordable pricing to the public;
• Non-domestic manufacturing benefits in the Indian domain.
Under the special provisions on notifying the public as per Section 92 of the Indian Patent Act 1970, the government (Indian government) may inform the public regarding the issuance of a compulsory license on any patent under dire situations of national emergencies, extreme urgency, or any public non-commercial use. The justification behind this section is to address the cases including public health crises relating to acquired immunodeficiency syndrome (AIDS), human immunodeficiency virus (HIV), tuberculosis, malaria, or other lethal epidemics. In addition to that, compulsory licenses are also available in the public domain for manufacturing and exporting patented pharmaceutical products to any insufficient and underdeveloped countries by addressing the public health problems related to that country, according to Section 92A of the Indian Patent Act, 1970.
ADVANTAGES OF PATENT LICENSING:
1. Generating financial revenue streams, including one-off payments, royalties, or payments as per the contracts, by licensing out their patented product or invention to other companies. Through this, both companies can collaborate to develop more innovative and efficient inventions to gain a competitive edge in the market.
2. Introducing the patented product and/or invention in the national and international market, enabling high bulk production and worldwide distribution of the product for global recognition through licensing.
3. Access to new technologies, as many start-up and small companies fails to have the expertise or resources to develop their own product on a large scale due to the high requirement of capital investment. Through licensing, collaboration with other companies may solve the monetary problem of developing new technology from scratch and lead to a more comprehensive solution that meets the needs of a wider audience.
4. Collaborating with other organizations through licensing can also reduce the legal risks and litigation costs that may arise from patent infringement lawsuits filed by other competitive organizations.
Patent licensing is a crucial tool for commercializing and monetizing innovations, benefiting both large and small companies. It provides a competitive edge in the market. In essence, patent licensing is a powerful tool that not only optimizes returns for innovators but also fuels broader technological advancement through strategic collaboration.
