Granting a License—Pitfalls to Avoid (Part 3 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 (3).

3. What type of license are you granting?

Typically, a licensee will want a license for itself, along with a license for all companies in its corporate structure, e.g., its parents, subsidiaries, and sister companies.  This is a common and reasonable request, because a licensee will not want to pay $X for a license, and then have you turn around sue its subsidiary.

In this scenario, you’ll need to make sure you have an understanding of who is being included in the license.

To do so, have a firm understanding of the corporate structure of the licensee.  If you grant a license to a smaller entity at a price point reflecting its size, but it is a subsidiary of one of the larger targets you plan on suing down the line, then you will inadvertently grant a license to the larger entity, at a suboptimal price point.

As such, you’ll need to know who’s included in the corporate structure of the licensee and price the settlement accordingly.

For public entities, this is relatively easy, because this is public knowledge and should be available in the company’s SEC filings.

For private companies, this is more difficult to ascertain, because this is not public knowledge.  If you are negotiating with a private company, have all related corporate entities listed in the settlement agreement and have an explicit recitation that no other entity will be obtaining the license.


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