Granting a License—Pitfalls to Avoid (Part 4 of 5)

Regarding basics for patent licensing, you must know (1) what patents are being licensed, (2) the type of license you are granting, (3) who will obtain the license, (4) what activity will be licensed; (5) and how to protect your damages base.

In this post, I’ll be discussing (4).

4.  What activity will be licensed?

According to 35 U.S.C. 271(a), infringing activity includes making, using, offering to sell, selling, or importing into the United States any patented invention.

Hence, a license for a given party need only include a right to perform the above activities.

Nonetheless, licensees typically attempt to cover upstream (e.g., the licensee’s supplier) and downstream (e.g., the licensee’s distributors and customers) actors.  This is a reasonable request, because a licensee will want to protect its, e.g., suppliers from being sued for supplying goods and services to the licensee.  And a licensee will want to protect its distributors and customers from being sued, for selling or using the licensee’s products (although downstream actors may be covered regardless, due to Quanta—I’ll discuss this in another post).

While the licensee may negotiate to have such upstream and downstream actors covered by the license, you’ll want to be careful to not grant a blanket license to the upstream and downstream actors for all activities, because you may lose your infringement claim against them, if they are performing corresponding activities for an infringing, but non-licensed party.

Put another way, you may have an independent infringement claim against those upstream and downstream actors for their activities with respect to entities similarly-situated to the licensee (e.g., a supplier infringes on two counts when it supplies chipsets to Apple and Samsung).

Hence, when granting a license to upstream and downstream actors, carve out the license such that it only covers activities performed for or on behalf of the licensee (e.g., a supplier manufacturing a chipset specifically for use in licensee’s products, or a distributor specifically distributing licensee products).

This will help you preserve your infringement claim against those upstream and downstream actors, for their infringement by or on behalf of other infringing, but non-licensed parties.

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