Patent license agreements start with the owner of record

A patent gives its owner the right to exclude others from practicing the claimed invention in the United States. A license is, at its core, a promise by the owner not to enforce that right against the licensee within agreed limits. It does not transfer ownership. The patent stays with the licensor, who remains responsible for paying maintenance fees and who usually keeps control over enforcement unless the agreement says otherwise.

This is what separates a license from an assignment. Under 35 U.S.C. 261, an assignment transfers the patent (or an undivided share of it) and must be in writing. A license, even an exclusive one, leaves title where it was. Courts look at substance rather than labels, so a document called a license that transfers all substantial rights can be treated as an assignment for purposes such as standing to sue. The reverse is also true: a document called an assignment that reserves major rights to the transferor may be treated as a license.

• A license is permission, not title. The licensor still owns the patent.
• An assignment transfers ownership and must be in writing under 35 U.S.C. 261.
• Labels do not control. Courts look at which rights actually moved.

The first decision in any agreement is exclusivity. A non-exclusive license lets the licensor grant the same rights to as many other parties as it likes. It is the typical structure for broad licensing programs, standard essential patents and settlements of infringement claims. An exclusive license promises that no one else, sometimes including the licensor itself, will receive the same rights within the defined scope. A sole license sits in between: the licensor promises not to license anyone else but keeps the right to practice the invention itself.

Exclusivity changes the economics and the legal position of the licensee. An exclusive licensee usually pays more, often accepts diligence obligations such as minimum sales or minimum royalties, and may gain the right to enforce the patent. On standing, the general rule is that an exclusive licensee who holds all substantial rights in the patent may sue infringers in its own name. An exclusive licensee with fewer than all substantial rights can usually sue only if the patent owner joins the case. A non-exclusive licensee generally has no standing to sue at all.

Scope is where most disputes start. A well drafted grant clause says which patents are covered (listed by number, often with continuations, divisionals and foreign counterparts), which acts are licensed, and within which limits. Vague grants such as "the technology" create arguments later about whether a new continuation or a later improvement is included.

Field of use restrictions limit the license to a market or application, for example medical devices but not consumer electronics. Territory restrictions limit where the licensed activity can happen. Because a US patent only has effect in the United States, territory clauses matter most when the license covers a family of patents in several countries. Sublicensing rights decide whether the licensee can pass rights on to customers, contract manufacturers or affiliates. If the agreement is silent, a licensee should not assume it can sublicense.

• Licensed patents: list numbers, and decide whether continuations, divisionals, reissues and foreign counterparts are included.
• Licensed acts: make, use, sell, offer to sell, import, or a subset.
• Field of use and territory: define them precisely so both sides can tell what is in and out.
• Sublicensing: state whether it is allowed, to whom, and how sublicense income is shared.
• Improvements: say who owns improvements made by each party and whether they fall under the license (grant back terms deserve careful review for competition issues).

Payment terms come in a few common shapes, and many agreements combine them. A running royalty is a percentage of net sales or a fixed amount per unit, paid periodically. A lump sum is a single payment, sometimes called a paid up license, which gives the licensee certainty and removes the need for ongoing reporting. Milestone payments are tied to events such as regulatory approval, first commercial sale or reaching a sales threshold, and are common in life sciences. Minimum annual royalties protect an exclusive licensor from a licensee that takes the exclusivity and then sits on it.

Running royalties need supporting mechanics. The agreement should define the royalty base (net sales, what deductions are allowed), the reporting period, the currency, late payment interest and audit rights. Audit clauses usually let the licensor appoint an independent accountant to inspect the licensee's records, with the licensee paying the audit cost if underpayment exceeds an agreed threshold. A most favored licensee clause promises that if the licensor later grants better terms to another licensee, the existing licensee can claim the same terms. These clauses look simple but often trigger disputes about whether a later deal is truly comparable.

When the parties need to put a number on a reasonable royalty, they often look to the same framework courts use in damages cases: the Georgia-Pacific factors, a list of 15 considerations set out in 1970 that includes established royalties for the patent, rates paid for comparable patents, the nature of the licensor's policy, the commercial relationship between the parties, the profitability of the product, and the outcome of a hypothetical negotiation between a willing licensor and a willing licensee. For a deeper look at how value is built up, see our guide to the value of a patent.

A handful of Supreme Court decisions shape what a patent license can and cannot do.

Brulotte v. Thys (1964) held that a patent owner cannot collect royalties for use of the invention after the patent expires. Kimble v. Marvel (2015) reaffirmed that rule and declined to overrule it. In practice, this means royalty obligations tied only to a patent must end when the last licensed patent expires. Parties who want payments to continue often split the consideration between patent rights and non-patent rights such as know-how or trade secrets, or step the royalty down at expiry, and they document that allocation carefully.

Lear v. Adkins (1969) held that a licensee is not barred from challenging the validity of the licensed patent. MedImmune v. Genentech (2007) went further and held that a licensee does not have to stop paying royalties and breach the license before it can bring a declaratory judgment action challenging the patent. Licensors respond with termination rights and other provisions, but they cannot rely on the license itself to silence a validity challenge.

Patent exhaustion limits what a licensor can control after an authorized sale. Quanta v. LG Electronics (2008) held that an authorized sale of a component that substantially embodies the patent exhausts the patent rights in that item. Impression Products v. Lexmark (2017) held that exhaustion applies to authorized sales regardless of post-sale restrictions, and that it applies to authorized sales made abroad as well. Licensors who want downstream control generally have to rely on contract terms with their direct counterparties, not on patent infringement claims against later buyers.

• Brulotte v. Thys (1964) and Kimble v. Marvel (2015): no patent royalties for use after expiry.
• Lear v. Adkins (1969) and MedImmune v. Genentech (2007): licensees may challenge validity.
• Quanta v. LG (2008) and Impression Products v. Lexmark (2017): authorized sales exhaust patent rights.

Patents declared essential to a technical standard, such as wireless communication or video coding standards, are often subject to a commitment made to the standards organization to license on fair, reasonable and non-discriminatory terms, usually called FRAND. That commitment shapes both the royalty and the remedies available. A licensor of standard essential patents generally cannot refuse to license a willing licensee, and courts and arbitrators have developed methods for setting a FRAND rate when the parties cannot agree. Many standard essential patents are licensed through patent pools, which bundle patents from several owners into one license. Our article on patent licensing companies explains how pools and other licensing models work.

The ownership question is especially important here. Standard essential patents are bought and sold frequently, and a FRAND commitment made by an earlier owner may follow the patent to the new one. A licensee negotiating with a new owner should confirm both the current owner of record and the commitments that came with the patent.

Every term above assumes the licensor can grant the rights it promises. Before signing, the licensee (and the licensor's own counsel) should check the patent's ownership history at the USPTO. Assignments, mergers, name changes and security interests are recorded in the USPTO assignment records, and each recorded document is identified by a reel and frame number. A USPTO patent assignment search shows who the records say owns the patent today and how ownership got there.

Recording matters because of 35 U.S.C. 261. An assignment that is not recorded within three months of its date, or before a later purchase, is void against a subsequent purchaser or mortgagee for value who had no notice of it. That rule protects buyers and lenders, but it also means the records can lag behind reality, and the USPTO does not review recorded documents for validity. It simply records what it receives. A license generally does not need to be recorded to be effective, and the USPTO accepts licenses for recording only as an option, so existing licenses may not appear in the records at all. That is why ownership checks belong alongside contractual representations, not in place of them.

• Does the licensor's name match the owner of record exactly, including legal entity type and any name changes?
• Is there an unbroken chain from the inventors to the licensor, including an assignment from every named inventor?
• Are there open security interests? A lender with a recorded security interest may have consent rights over licensing.
• Has part of the patent been assigned to a co-owner? In the US, each co-owner can generally license without the consent of the others, which can undercut an exclusive deal.
• Are there terminal disclaimers that tie enforceability to common ownership with another patent?
• Is the patent subject to government rights, for example under the Bayh-Dole Act for federally funded inventions?
• Are maintenance fees paid, so the patent is still in force?

For an exclusive license, these questions become part of a broader patent due diligence review. For a non-exclusive license to a large portfolio, a licensee may focus on the patents it actually expects to practice.

Ownership checks should be reinforced in the contract. Licensees typically ask for representations that the licensor owns the licensed patents, has the right to grant the license, has not granted conflicting rights, and is not aware of any claims against the patents. Licensors usually limit warranties on validity and non-infringement, since neither can be guaranteed. Termination clauses, survival clauses and dispute resolution (court or arbitration, governing law, venue) round out the agreement.

The work does not stop at signature. Ownership can change after the license is signed: the licensor may sell the patent, merge, go bankrupt or grant a security interest. In US law, a license generally survives a transfer of the patent and binds the new owner, but practical problems arise when the new owner is unaware of the license or disputes its scope. Licensees with significant exposure often set up patent monitoring so they learn quickly when a recorded assignment changes the owner of a licensed patent. An exclusive licensee may also choose to record its license at the USPTO to put later purchasers on notice, even though recording is optional.

• Ask for an ownership representation and a covenant to give notice of any transfer.
• Require the licensor to keep the patent in force by paying maintenance fees, or give the licensee the right to pay them.
• Address what happens if the patent is sold, including assignment of the license agreement to the buyer.
• Consider recording an exclusive license so later purchasers have notice.