Granting a License—Pitfalls to Avoid (Part 1 of 5)

When granting a license, clearly understand the scope of the license you are granting.

If you grant a license to a third party, but you inadvertently grant them a right to sublicense, or if there is a hole in which additional parties can obtain a license without going through you, then you are enabling a loophole in which you are giving away licenses without additional consideration.

This is absolutely fatal to your monetization campaign.

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.

I will be discussing these topics in five successive posts.

  1. What patents are being licensed?

When negotiating for a license, most licensees will want a license to all patents owned by the entity that initiated the lawsuit (“suing entity”).  To illustrate, if you own a company that has ownership interest in ten patents, but you only assert three patents in the litigation, the licensee will typically want a license to all ten patents.  This is a reasonable request, because the licensee would not want to pay you $X to settle the litigation by taking a license to the three patents, but then have you sue them the next day on the other seven patents.

If you are engaging in settlement discussions, expect to license all patents owned by the suing entity and price the settlement accordingly.

But if you own multiple companies that each own separate patent portfolios, you must be extremely careful that you do not grant a license to the other affiliate entity patents. If you do, you may end up granting a license to all patents owned by each company in which you have an ownership interest.

This loophole typically comes up when “affiliate” language is included in the agreement.  An affiliate is any entity related to a party to the settlement agreement, where a party has at least, e.g., 50% ownership interest in the affiliate. If you own multiple companies and have more than, e.g., 50% ownership interest in the other companies, all of the companies would be an affiliate to the suing entity.

When granting a license, be sure that only the suing entity is granting a license to the patent it owns, and that no other affiliate patents are included in the license.  You can do this by explicitly listing the patents being licensed, indicating that no other patents are being licensed, and stating that no affiliate entity’s patents are included in the license.


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