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Model Patent License

Issue: Is the scope of the definition of "Licensed Patent Rights" sufficiently broad?

Discussion

The definition of Licensed Patent Rights currently reads:

“Licensed Patent Rights” means (a) the patents and patent applications listed in the License Data Record, (b) all divisionals, continuations, and foreign counterpart applications claiming priority from any patent or patent application described in (a), (c) those claims of any continuations-in-parts that claim priority exclusively from the patents or patent applications described in (a) and (b); (d) all patents issuing from patent applications included in (a) through (c); and (e) all reissues, reexaminations, renewals, and extensions of any patents included in (a) through (d).

The current definition includes patents and applications that are expressly listed as well as most types of subsequent daughter applications that are related to them by priority.

One criticism of this definition is that may not be broad enough to protect the Licensee from the situation in which the Licensor does not include all necessary patents in the license grant (for example, where the Licensor licenses an improvement patent without licensing a dominant blocking patent). In those situations, a Licensee who fails to conduct sufficient due diligence may think that it has licensed all necessary rights from the Licensor, and may be surprised later if the Licensor seeks to enforce dominant patents. This outcome can be unfair to the extent that it defeats the expectations of the Licensee with the respect to the benefit of its bargain or induces the Licensee to infringe the Licensor's unlicensed dominant patents.

While some courts have addressed this situation (e.g., "TransCore v. Electronic Transaction Consultants Corp.", 563 F.3d 1271 (Fed. Cir. 2009)), under the doctrine of equitable or legal estoppel, the case law does not provide adequate certainty for drafting purposes. Thus, it would be desirable to take a clear position with respect to the draft language.

An earlier draft of this provision also included certain parent applications, to which the listed applications may claim priority. However, some commentators objected to the inclusion of parent applications, on the basis that this would create ambiguity and uncertainty. They pointed out, for example, that the claims of a daughter application are entitled to claim priority based on the specifications of a parent application, but there is no clear method for determining to what extent the claims of the parent application should be licensed based merely on priority. In addition, such a definition, while broader than the current definition, would not entirely address the issue. For example, the dominant patent may not be related by priority.

Thus, commentators have suggested a number of alternatives:

• use language similar to GPL 3.0 ("A contributor's 'essential patent claims' are all patent claims owned or controlled by the contributor, whether already acquired or hereafter acquired, that would be infringed by some manner, permitted by this License, of making, using, or selling its contributor version, but do not include claims that would be infringed only as a consequence of further modification of the contributor version")

Discussion: One difficult of adapting such a definition is that the object of the license in the case of GPL is a software program, which serves as a specification around which the scope of the license can be limited. In the present license, it is a patent or patent application itself which is being licensed, and thus there is no separate specification or software code which serves to limit the scope of the license.

• include all patents "necessary to practice" the licensed invention (an example would be Microsoft's Open Specification Promise, which states in part "'Microsoft Necessary Claims' are those claims of Microsoft-owned or Microsoft-controlled patents that are necessary to implement only the required portions of the Covered Specification that are described in detail and not merely referenced in such Specification. 'Covered Specifications' are listed below.")

Discussion: This type of definition would probably provide the maximum comfort the the Licensee that it has obtained the rights necessary to practice a particular specification. However, it does require that a clear specification be given as part of the license. (But such a specification could come from the licensed patent itself, or from a particular physical embodiment, software code, or standard). Furthermore, it would shift the burden of conducting patent due diligence onto the Licensor, to the extent that it needs to conduct analysis to reassure itself that granting such a broad scope is consistent with its business strategy and legal obligations. Nevertheless, this remains a viable and useful option alternative to address those scenarios where providing certainty to the Licensee is critical (e.g., for adoption and implementation of common industry standards and specifications).

• limit the licensed patent rights only to listed patents (e.g., the Eco-Patent Commons defines the pledged patents as "patents on the Patent List, and no other license...")

Discussion: This is the narrowest and most specific definition. Unlike the current definition, it would not include daughter applications, such as continuations and divisionals. However, this would greatly raise the level of uncertainty for the Licensee, particularly because daughter applications claiming the same subject matter may not yet be published and discoverable, even with due diligence by the Licensee. In the context of the Eco-Patent Commons, which is a free public non-assertion, it may be appropriate to provide such a "quit-claim" type of license, which confers no further assurances. And indeed, this is that situation with the Research Non-Assertion. However, in the context of the Patent License, which in some cases may carry a royalty, we want to provide a little more certainty for the Licensee.

• Some commentators have suggested that we provide two alternative definitions of Licensed Patent Rights, which the Licensor may choose from when making its offer. One definition would be the current definition, accompanied by warning to the Licensee regarding the need to conduct its own due diligence prior to licensing. The second alternative would be some version of the "necessary to practice" type definition, along with the option for the Licensor to supply the Specification that it wishes to license (which could be a specification of a patent).

Discussion: We are currently considering this approach because it provides greater choice and flexibility in any given situation to shift the burden of conducting due diligence, which may vary for the technology, its intended uses, and the intended audience. Having these alternative definitions may also facilitate Licensees and Licensors bargaining over the allocation of risks and uncertainties.

Other Feedback

1. Some Commentators suggested that the preamble should clearly that that the Licensor reserves the right to refuse to grant a license to anyone who has been accused of the Licensor's patents or with whom they may be engaged in patent litigation (to prevent potential licensees from willfully infringing and waiting to only take a license after they have been caught).

2. It is suggested that the phrase "under the Licensed Patent Rights" be added as follows:

"Subject to the terms and conditions of this Agreement and the License Data Record, Licensor grants to Licensee a non-exclusive, non-transferable (except as expressly permitted in Section 9) license under the Licensed Patent Rights, in the Territory and during the Term, without a right to sublicense, to make, use, sell, offer for sale, and import Licensed Products and to practice Licensed Processes..."

Discussion: Such a change would be useful to clarify that the Licensed Patent Rights serve as a scope limitation on the license (and not merely a specification for Licensed Products and Licensed Processes).

3. It was suggested that the ability to qualify the scope of the "have made right" should similarly be extended to the "make", "use", "sell", "offer for sale", and "import" rights as well.

Discussion: While this may provide greater flexibility for the Licensor, is this level of complexity useful for this type of license? Would it make the license too difficult for Licensees to interpret? Might this be reserved as a future option to implement if there is demand for it?

4. It was suggested that the Term should be flexible and an option should be permitted to set a definite Term of years (or months) rather than always be for the life of the patent.

Discussion: Again, the relevant question is whether this would introduce unnecessary complexity, whether there is real demand for it, and whether it might cause "patent hold-up" problems for unsophisticated licensees when the Term expires and they are required to renegotiate after having adopted and invested in the technology.

5. It was suggested that the Licensor's right to terminate for defensive purposes should not be limited to when the Licensee initiates patent claims against the Licensor, but also be permitted even when the Licensee tries to assert its patents "defensively" against a Licensor who initiates patent litigation first (i.e, as a counter-claim to a patent suit initiated by the Licensor).

Discussion: We start with the assumption that Licensor who is holding patents for defensive purposes would not be willing to license those patents unless that defensive use was reserved, which is the effect of the current clause. However, in the situation where the Licensor itself initiates an infringement action against the Licensee on unrelated patents, should the Licensee be confronted with the choice of giving up the defensive use of its patents or losing the license that it has bargained for (and possibly facing an injunction on current products)? Since in the latter case, the stakes are much higher for the Licensee, we believe the current definition of defensive use as responding to, rather than initiating, a patent lawsuit is appropriate.

6. It has been suggested that the determination of when patent marking is appropriate should be made by the licensor (Section 8), since patent marking by the licensee is not always appropriate.