Legal code for patent licence agreements

The laws governing patent licensing transactions are patchy and confusing.  As far as IP Draughts is aware, no country has established a comprehensive legal code for such transactions, unlike the position for contracts for the sale of goods.  In the latter case, examples of a code include the UK’s Sale of Goods Act 1979, the USA’s Uniform Commercial Code (particularly Article 2) and the UN Convention on Contracts for the International Sale of Goods.  The European Commission is currently trying to introduce a Common European Sales Law.

In the absence of a code, when determining the rights and obligations of the parties to a patent licensing transaction, it is all the more important to define those rights and obligations in a detailed written agreement.  But not all transactions can justify the time and expense involved in preparing detailed written agreements that seek to address every legal eventuality.

Therefore, it will sometimes be necessary to fall back on general legal principles.  But what are those principles?  They may be a mixture of:

  • special rules in patent legislation, eg provisions stating that patents may be licensed or assigned, or the requirement under UK patent law for a joint owner of a patent to obtain the consent of the other joint owner before licensing the patent.
  • rules in general property laws, eg the principle of non-derogation from grant as articulated in the BL v Armstrong case, or the meaning of joint ownership and ownership in common, respectively.
  • rules for contracts generally, eg the rules governing formation of a legally-binding contract, or the circumstances in which terms may be implied into a contract.
  • case law on specific terms that have been implied into patent licence agreements, eg as to whether the licensor must sue infringers, or provide improvements, and whether the licensee must allow audits for the purpose of verifying whether the correct royalties have been paid.

Other areas of law may also affect the terms of patent licensing transactions, eg competition laws and tax.

A further complication is that these rules vary between countries.  For example, US patent law allows a joint owner to license without the consent of the other joint owner, unlike the position in the UK as mentioned above.  Another example is the question of whether a licensee is permitted to sub-license, in the absence of a specific right to do so in a written licence agreement; the answer to this question varies between countries and, in some countries (eg Germany), depends on whether the licensee has an exclusive or non-exclusive licence.  Many other examples of national variance could be given.  We discuss some of them in our book, Drafting Agreements in the Biotechnology and Pharmaceutical Industries (OUP, looseleaf, 2008 onwards), which has contributions from lawyers in 7 jurisdictions including the US, UK and Germany.

In IP Draughts’ experience, most patent licence agreements are international in character, in that they involve parties based in different jurisdictions and/or a territory covering more than one jurisdiction.  It is unfortunate, to say the least, that the rules governing such transactions may vary depending on the law of the contract or the location of the patents.  Bearing in mind that we have managed to harmonise substantive patent law (eg among countries of the European Patent Convention) it is a shame that we haven’t yet managed to harmonise the rules governing the licensing of patents.

This theme is covered in considerably more detail in a chapter on patent licensing, written by IP Draughts, in a forthcoming book, a Research Handbook on Intellectual Property Licensing, edited by Professor de Werra of the University of Geneva and due to be published by Edward Elgar Publishing.

That chapter proposes a detailed code for patent licensing, which might be promulgated by a United Nations body such as WIPO.  Here are a few of the themes, in outline:

  1. The licensor warrants that he is entitled to grant the licence (either as owner or licensee) and will continue to be so entitled for the duration of the licence, except as disclosed in writing prior to entering into the licence agreement.
  2. The licensor must disclose to the licensee any claims made by a third party alleging that he has any rights in the licensed patents.
  3. Except as stated above, no warranties are implied into a patent licence agreement.
  4. The licensee may require his licence to be registered at national patent offices at his expense.  On termination of the licence, the licensee must cooperate with the licensor in cancelling the registration.
  5. Where a licence is registered, it is binding on subsequent owners of the licensed patents.
  6. A licence may be written or oral.

And so on.  People may disagree with individual provisions such as those stated above, but do readers think that it is desirable in principle to have a near-comprehensive set of rules, preferably the same set of rules in all major jurisdictions, governing patent licence agreements?

3 Comments

Filed under Intellectual Property, Legal policy, Licensing

3 responses to “Legal code for patent licence agreements

  1. I am going to write a thesis on this topic there any could help me and suggest any literature

  2. Lorin Brennan

    In answer to the last question, a definitive yes! It would be most helpful to have a comprehensive commercial code for IP contracts. I would not limit the code just to patents, however. I would cover all forms of IP, including coipyrights, trademarks and trade secrets. There are two reasons. First, as a commercial matter, many transactions mix multiple types of IP. Consider software. It may have elements protected by patent, copyright, trademark and trade secret. Consider a movie: copyright of course, but also trademark (title, merchandising of characters) and now even patent (digital effects). Second, as a legal matter, many of the same comercial law principles apply to all types of IP, including issues of contract formation, interpretation, performance, warranties, breach and remedies. The lack of uniformity in the international rules for commecializing IP is becoming an increasing barrier to trade. An IP commercial code would provide a common framework for discourse, reducing misunderstandings and transaction costs for all parties.

  3. Douglas Robertson

    A great deal of time and effort is consumed in looking at IP protection and seeking greater standardisation but little time has been spent synthesising the commercial laws which then interpret contracts based on such protection. The work on the first is of little commercial benefit without the second. Any work which can be done to achieve greater consistency would be welcome. These points have been made in recent PraxisUnico comments on the Hargreaves review.

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