Licensing is one of the most important and most common transaction formats for commercializing information and information assets today. We live in an ‘information age’, a term that not only signals the importance of informational assets, but also the widespread commercial dissemination of information and of tools for processing, analysing and using information based on digital and modern communications systems.
Licensing transactions are quite distinct from other commercial transactions just as informational assets are distinct from real estate, goods and personal services. The commercial role and the fundamental nature of a license differs markedly from sales and leases of goods and real estate and various other commercial relationships. The essence of a sale is the passing of title to goods from the seller to the buyer for a price. A license, however, is a contract that allocates rights and limitations in the use of an informational asset.
A patent license is generally defined as "leave to do a thing which the licensor would otherwise have a right to prevent." Patents have the attributes of personal property and may be assigned by instruments in writing. Patent applications may also be assigned by instruments in writing. Such assignment instruments should generally be recorded with the respective Patent offices since the failure to do so may render the assignment void as against a subsequent purchaser without notice of the assignment.
There is another term known as ‘cross-licensing’. Patent cross-licensing is the mutual sharing of patents between patent holders (generally companies) that grant each the right to practice the other's patents. Cross-licenses can vary in scope, for example, by providing for fixed fees or running royalties that flow in one or more directions or provide for no compensation at all to the parties. In addition, cross-licenses can contain geographical restrictions and may involve the parties' se of as few as two patents (one from each of the parties) to a specified number of patents to even an entire portfolio.
Antitrust/ anti-competition laws and other doctrines like ‘patent misuse’, export restrictions create constraints on patent license agreements which should be considered while drafting license agreements. Antitrust/ anti-competition laws aim to protect the public from the excesses of monopoly power that might hamper free and fair competition. Because the exclusive patent rights are often regarded as a limited form of monopoly, antitrust actions could be brought to challenge patent license agreements as well.
Licensing provisions which may have antitrust/ competition law implications include price fixing, cross-licensing, horizontal divisions of territory, package licenses, grant-back clauses, patent pooling, tying arrangements, etc.
If the patent licensing has to be understood from recent examples, then Microsoft provides for a perfect case-study. A couple of days back, Microsoft General Dynamics Itronix (a maker of rugged computers and tablets) have signed a patent agreement that provides broad coverage under Microsoft’s patent portfolio for General Dynamics Itronix devices running the very popular Android platform. General Dynamics Itronix has signed a patent agreement with Microsoft that provides broad coverage under Microsoft’s patent portfolio for General Dynamics Itronix devices running the Android platform. Microsoft has signed similar deals with HTC, Amazon, etc. as well previously. But so much as it seems voluntary, it could be said to be a reaction to the bottle-neck which Microsoft created in the past months for Android owners. There were several actions againstAndroid vendors to coerce them to pay per unit royalties to avoid Microsoft’s legal wrath.
The patent license agreement between thee two companies is yet another example of the important role intellectual property plays in establishing and maintaining a healthy and cohesive information technology ecosystem. Since December 2003, when Microsoft launched its IP licensing program, the company has entered into more than 700 licensing agreements with several other companies and continues to develop programs that make it possible for customers, partners and competitors to access its IP portfolio.