Transfer of “all substantial rights” in a patent from a
patentee/licensor to a licensee is essential for the licensee’s standing to sue
an infringer (i.e., right to enforce the patent) in courts. Despite parties’ intent to transfer “all
substantial rights” in a patent license agreement, the actual terms in a
licensing agreement are more dispositive on whether the licensee has the
“substantial rights” and therefore the standing to enforce/sue.
An analysis of case laws suggests that a court tends to
inquire into two fundamental questions in determining whether a licensing
agreement has transferred all substantial rights in a patent from a patentee/licensor
to a licensee. Therefore, to ensure the
transfer of all substantial rights transferred by a licensing agreement, a
licensor should check the effect of each term in the agreement against the two
fundamental questions to understand whether any term prevents the transfer of
all substantial rights.
Fundamental property rights inquiry
Similar to rights in a personal property, ownership (i.e.,
substantial rights) to a property (such as a patent) includes the rights to
use, exclude others from using, and dispose such property freely. Therefore, any substantive encumbrance to
these rights prevents a transfer of all substantial rights.
Based on this inquiry, in order to transfer all substantial
rights, a license agreement must assure that the licensee:
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-- has the right to make, use, sell, and offer for
sale the patented invention.
- --
has the right to license to others and/or grant
sublicenses to others
o
without being subject to the patentee/licensor’s
veto rights to the proposed assignments of the exclusive license, especially a
veto right in the patentee/licensor’s sole discretion.
- --
has the exclusive right to assert the patent
o
without joining the patentee/licensor
o
without being subject to or junior to any other
party’s right to assert
o
without having to seek consent from the patentee/licensor;
veto rights by the patentee/licensor will defeat a transfer of all substantial
rights.
o
it is ok that the patentee/licensor share in an
insubstantial part of the exclusive licensee’s monetary recovery received from
patent infringers.
o
It is ok that the licensee has the duty to keep
the patentee/licensor informed and consult with the patentee as to any
litigation and settlements.
Public policy inquiry
The policy reason behind the requirement that an exclusive
licensee/assignee must have “all substantial rights” in order to have the
standing to sue is to avoiding the multiplicity of lawsuits against the same
infringer arising from the same act.
Based on this inquiry, in order to transfer all substantial
rights, a license agreement must assure that:
- --
the patentee/licensor does not divide up the
exclusive license by the patent’s claims or the fields of use and that the
licensee has the exclusive right to concurrently assert the patent in all
domains, whether commercial or non-commercial or otherwise; any division of
enforcement rights by fields of use will defeat a transfer of all substantial
rights.
- --
there is preferably no prior licenses to the
patent.
- --
the agreement does not grant the patentee/licensor
a reversionary interest in the patent except for bankruptcy or objectively egregious
breaches of the agreement; at will termination of the license agreement by the
patentee/licensor will prevents a transfer of all substantial rights.
- --
the license to the underlying patent lasts the
remaining term of the patent; an exclusive license with a termination date
before the expiration of the patent will prevent a transfer of all substantial
rights in the patent.
-
-- it is ok that the patentee/licensor grants to an
exclusive licensee all substantial rights in a specific geographic area of the
United States; a division by geographic areas is ok.
Thanks for reading.
Connie
