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Patent Royalty License Agreements
How to negotiate a robust invention royalty license contract
Invention royalties (sometimes called patent royalties) are at the heart of any patent
Although the % RATES for invention royalties are considered BOTH
on my patent royalties page and in a lot more detail in my FREE eReport (please use
the signup form on the right to get it) .. this article looks at what ELSE should
go into a good patent royalty agreement.
Negotiating Patent Royalty Agreements
As well as the actual rate of your invention royalties, your license agreement should
cover many other issues, including:
Downpayments ..when the deal is signed, you should aim to get a substantial downpayment,
even though it is likely to be against future royalties. Normally, it should at
least cover your development costs to date. This shows good faith on behalf of your
Minimum invention royalties .. if you are negotiating an exclusive patent licensing
deal, be sure to agree minimum invention royalty payments, in case actual sales fall
below projected sales.
Territory definition .. always be sure to define the geographical territory that
your licensee has the rights to sell into. This can be most important, as you may
well want to license your invention to several companies each having their core market
strength in different parts of the world.
Duration .. you must define when the license deal will end (and may relate to your
patent expiry date). You may also want to include options for renewal on the same
or renegotiated terms.
Failed patent grant .. Most often, your licensee will begin selling your invention
when your patent is still pending. If the patent office do not then grant your patent,
your invention royalties agreement should ensure you continue to get royalties, though
at a reduced rate (e.g. by 50%). The actual reduction will vary according to competitor
barrier to entry.
Ownership of improvements .. this can get tricky. Say one of your licensees comes
up with an improvement to your invention. Then who owns it? Do they have the right
to file a separate patent, a joint one with you, or none at all? And if you have
competing licensees, do they have the right to the improvement also?
can get complicated, and alas there isn’t a hard-and-fast rule; each negotiation
is different ... but do think over your preferred position ahead of time.
Currency fluctuation .. consider the effects of foreign exchange fluctuations with
any foreign licensees. I always try to negotiate invention royalties for my clients
in their home currency, NOT that of the licensee country if different.
Vertical market application .. if your patent enables sales of more than one specific
product and/or into more than one market, your invention royalty agreement should
carefully define the particular product and/or market.
Payments of invention royalties .. the agreement should specify WHEN you get paid
(usually quarterly), and what happens in the event of late payments.
Proof of sales .. obviously you need some kind of documentation that verifies you
are being paid the correct amount, although the sad truth is that if a company wants
to “cook the books”, there is often little you can do about it. However, you can
negotiate a clause that allows you to periodically send in an accountant to examine
the records - though this will normally be at your expense.
Ongoing patent maintenance fees .. During the life of your patent you will incur
ongoing maintenance fees. These can be most considerable, especially if you have patents
covering more than one country. If you are negotiating an exclusive invention royalties
agreement, you may be able to share or even pass on these costs to the licensee.
Use a patent lawyer or agent
While the above is by no means exhaustive, it does clearly show that as well as negotiating
the actual rate of your royalties, a good and robust invention royalties agreement
must also clarify and define a host of other important considerations.
In my view
therefore, it is essential to use the services of a professional patent lawyer or
patent agent skilled in specifically this type of contracts law. Yes, they can be
very expensive, so you may choose to use them only at the end of your negotiations,
just before you sign ... but DO use them at least then.
Would you like customised help for YOUR invention?