After months of effort, you have successfully negotiated a nonexclusive license under an important patent. The license agreement allows you to make, use, sell, offer for sale, and import products that are covered by the patent. Much to your horror, your arch-competitor starts making and selling competing products that use the licensed technology, pricing its products substantially below your planned price. When you inquire, the licensor says that the competitor does not have a license. What can you do to stop this “third-party” infringement of the patent?
You examine the license agreement but see nothing about third-party infringement of the licensed technology. Can you stop your competitor from using the technology? Can you force your licensor to stop the competitor? The short answer is “no”.
A nonexclusive license is, in effect, the licensor’s promise not to prevent you from practicing the licensed technology. It gives you none of the rights of a patent owner, such as the right to stop infringement. Furthermore, because you are a nonexclusive licensee, the licensor need not protect you against competition. The licensor may license to your competitors and is free to tolerate infringers.
So, if you enter into a nonexclusive patent license agreement as licensee, make sure the licensor is obligated to stop third-party infringement. The relevant provision should:
- Take effect if you notify the licensor, or the licensor otherwise learns, of infringement;
- Obligate the licensor to bring suit to stop the infringement; and
- If the licensor fails to stop the infringement, give you the right to (a) stop paying royalties or (b) bring suit in the licensor’s name ( in which case the agreement needs to include the licensor’s consent to be named as a party and obligation to cooperate in the litigation).
Dana H. Shultz, Attorney at Law? +1 510 547-0545? dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.