Swindell & Pearson Knowledge Centre - Patent Licensing

Licensing is giving a third party access and permission to use your products, your ideas, your brands – even art that you may have created. This is done in the form of an agreement where the owner of the asset will often receive some credit either in the form of exposure or income.

What is patent licensing?

Patent licensing is the act of granting third parties rights to your intellectual property such as patents in exchange for a license fee or ongoing royalties – an additional income stream. For example, you may not be able to exploit your patented product’s full potential yourself and therefore you choose to license it to a company with a larger scale or with access to markets that are closed off to you. You may even license your patented invention to a competitor who has a requirement for your technology.

A real world example of patent licensing to a competitor can be obtained by looking at the recent disputes between Nokia and Apple over patents. Nokia was an early pioneer in developing mobile related technology securing a vast number of patents. Though Nokia no longer manufactures smartphones and therefore is not directly in competition with Apple, many of the patents the company secured cover rights to technologies such as preserving battery life, strengthening mobile signals and touch interfaces all of which have become important innovations with the advent of smartphones.

In 2011, Nokia and Apple settled a patent dispute over use of Nokia patents in Apple iPhones. The settlement included a one-off payment and ongoing royalties from every iPhone sold. Given the popularity of the iPhone, this provided Nokia with a substantial revenue stream. The deal led to a rise in Nokia’s then share price and a statement from the company said the settlement would have "a positive financial impact" on its upcoming quarterly results.

In 2016, the two companies again entered a patent dispute which was quickly settled. The new agreement led to a reported $2bn cash payment from Apple to Nokia along with revised licensing terms and further business collaboration opportunities which were not disclosed.

Nokia’s forward thinking in securing patent protection for what it felt would be important mobile phone technological innovations has given the company a valuable footing in the smart phone arena. Licensing has become a key business venture for Nokia and a very important of its business.

Nokia recently signed a patent cross-licensing deal with the multinational Chinese electronics firm Xiaomi; the largest smartphone company in China. This deal will help Nokia to access the huge Chinese market bringing significant new opportunities to the company.

Licensing can therefore be a very lucrative way of generating an often steady income stream. Licensing is also one of the significant benefits of obtaining patent protection and it can often be the main reason for companies to obtain a patent. Some companies will even obtain patents in a certain technology areas with the intention of licensing them out to multinational firms.

How do I license a patent?

Patent licensing is done by having an, often written in the form of a contract, agreement between two parties which clearly sets out the terms and conditions of the license being granted. This will typically outline what use the patent holder (licensor) is granting to the third party (licensee) including what can and can’t be done with the patent, timescales the agreement is in force for and the terms of payment such as royalties and license fees.

A good intellectual property firm (such as Swindell & Pearson) can advise and help to draft a comprehensive licensing agreement focusing on commercial objectives.

Are royalties and license fees different?

Yes. Though royalties are also a type of license fees, the two terms have different meanings. A license fee is often a one off or recurring payment for use of a product or service under specific terms. The best example is the UK BBC license fee which consumers pay annually to access content the BBC creates and puts out on television, radio and online.

A royalty fee or payment is usually a regularly occurring fee that is required to be paid typically calculated as a percentage of sales or as a fixed cost per sale. Going back to the Nokia and Apple example, the 2011 settlement between the firms led to Nokia receiving a small percentage of revenue from each iPhone sold. This was a royalty fee.

In some patent license agreements a license fee and an ongoing royalty can be agreed by both parties. A licensed patent can therefore generate additional income through both license fees and ongoing royalties.

What are the risks?

The most obvious risk is to enter into a licensing agreement with a third party for your innovative technology when you have not obtained patent protection for it. If your invention, which is obviously of interest, has not been protected then what is to stop the other side from stealing your idea and exploiting it from themselves? With a patent in place, that would not be possible. This level of protection a patent affords makes the investment into obtaining patent protection worth it. There are of course other risks but again, a good intellectual property firm can advise and guide you on mitigating and avoiding those risks as well as grasping the opportunities that licensing can present.

Conclusion

Licensing can be a very lucrative and beneficial transaction for a business or an individual to pursue. If you have an innovative invention, an interesting brand or even unique piece of art then licensing can be a great way to generate an income stream.

Licensing a patent is just one of the benefits of obtaining patent protection. It allows you to grant third-parties such as other companies, individuals and even competitors use of your innovative inventions in exchange for a license fee or royalties without the risk of having your idea stolen. In addition, licensing patents can help your company to enter into new markets and build new business relationships.

As with most aspects of intellectual property, when considering patent licensing, always speak to a good, commercially focused intellectual property firm who can help, advise and guide you on how to further maximise the value of your patent through licensing.

Swindell & Pearson is a UK based firm of patent and trade mark attorneys that has been helping businesses and individuals protect and defend their ideas, innovations and brands for over 135 years. Based in the East Midlands, the firm has offices in Derby, Stoke, Wolverhampton and Stafford as well as in Sheffield. To find out how Swindell & Pearson can help you and your business with any intellectual property requirements including licensing, please get in touch [email protected] or by telephone on 01332 367 051.