Patent It Yourself - PDF Archive

444 | Patent it YOURSELF
H. Universal License Agreement
If you do feel confident enough to represent yourself, and
you’re the type of person who can go through a long license
agreement with nit-picking skill and then competently
negotiate with corporate pros, more power to you. Start
your quest by referring to the Universal License Agreement
in Appendix 7 (Form 16-5). This agreement can be used
to exclusively or nonexclusively license your invention as
well as to license know-how. It can also be used to grant a
potential licensee an option to evaluate your invention for
a given period in return for a payment. As I’ve said, most
companies will either prefer their own license agreement or
make one up from scratch, but you can use the Universal
License Agreement for purposes of comparison.
Do you find the agreement long and complex? So do I.
To deal with it easily, it’s best to consider each of its parts
separately. The sample shown (Fig. 16C) is for the first page
of an exclusive license with an option grant and a knowhow
license.
Part 1: Parties and Summary of Terms. The licensor is the
party, usually the inventor, who does the licensing, while
the licensee is the party who is licensed—that is, given
permission to use the invention, patent, know-how, etc.
The Patent Royalty rate is the percentage rate the
licensee pays for use of the patent. I made this rate low (2%)
purposely, since a know-how license has been granted at
a rate of 3% for an overall (total) royalty of 5%. It’s usually
to an inventor’s advantage to license know-how, as well
as patent rights, and to make the know-how rate as high
a proportion of the total rate as possible. This is because
patents can be held invalid and can only be licensed for a
limited term (the duration of the patent application plus the
approximately 18-year term of the patent), usually a total
of about 19 years; whereas a know-how license can extend
indefinitely. In order for know-how to be licensed, the
inventor must actually transfer (or be able to transfer) some
actual know-how to the licensee.
A licensing fee (advance) is customarily paid to the
licensor upon signing the agreement as a reward for past
work. In the agreement, the licensing fee is computed as an
estimate of the first year’s sales by multiplying (a) the Patent
Royalty Rate by (b) the Estimated First Year’s Sales in Units
by (c) the Estimated Unit Price in dollars. Again, it’s usually
in the inventor’s interest to get as large a signing bonus as
possible, and not to have this money be set off against later
royalty payments.
The “Exclusive” box is checked, indicating that only the
licensee will be entitled to make, use, or sell the invention.
If the “Nonexclusive” box is checked, the licensor will be
able to license others, and the licensee and the licensor
will be able to make, use, and sell the invention. The title,
serial number, and filing date of the patent application are
identified next.
The “Minimum Number of Units to Be Sold to Compute
Minimum Annual Royalty” (whether or not they are
actually sold) is provided to ensure that the licensor receives
an adequate income from the licensee inasmuch as he
can’t, under an exclusive license, license others to derive
more income. This minimum annual royalty has been
computed on the basis of a minimum annual number of
units to be sold (rather than a fixed dollar amount) to give
the licensor the benefit of inflation in unit price. While the
manufacturer can cut the price of the licensed product and
thereby reduce its royalty payments to you, it’s generally
not in its interest to do this, since it will be reducing its
profits as well. However, if you want protection against this
possibility, you can substitute a fixed dollar amount for the
minimum annual royalty.
For the privilege of obtaining an option to exclusively
evaluate the invention for the Option Term, an Option
Premium (a one-time cash payment) has been paid to the
licensor.
The Know-How Royalty Rate is stated and is added to
the Patent Royalty Rate to get the total, or Running Royalty
Rate.
Part 2: Effective Date. The effective date of the agreement
is the date when the last signature is made.
Part 3: Recitals. Here the Recitals provide the background
reasons or premises for the agreement to aid in interpreting
it. The recitals simply state that the licensor has an
invention, a patent application, and possibly know-how,
and the licensee desires to evaluate licensor’s invention (if
an option has been granted) and to make, use, and sell the
licensed invention.
Part 4: Option Granted. This covers the parties’ rights
if an option has been granted. In this case, the regular
license grant doesn’t take effect yet, but the licensee has the
exclusive right to investigate the invention for the option
term indicated in Part 1. If the investigation is favorable,
the licensee will exercise its option and the patent license
grant of Part 5 will take effect. If not, the option will not be
exercised and all rights will revert to the licensor and the
licensor will get the results of the licensee’s investigation of
the invention.
Part 5: License Grant. This contains the actual license
grant. This comes into play immediately if the invention is
licensed or if an option is granted or if the option is granted
and exercised. Remember, if an option is granted, the
actual license isn’t granted until the option is exercised. The
license granted (exclusive or nonexclusive) gives the licensee
the right to make, use, and sell the licensed product in the