Patent Licensing Agreement Attorney — Austin, Texas
A granted patent only creates value when you enforce or license it — a well-structured license agreement turns your patent portfolio into revenue while protecting your rights, with royalty structures informed by genuine technical understanding of your technology's commercial value in the relevant market.
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Patent Licensing as a Revenue Strategy
Patent licensing is one of the most direct mechanisms for converting IP investment into financial return — and for technology companies with strong patent portfolios, licensing revenue can become a significant business line that operates largely independently of product development and manufacturing. Understanding the strategic options available in patent licensing — and the agreement structures that implement those options effectively — is essential for IP portfolio owners who want to extract maximum commercial value from their patent assets.
The fundamental economics of patent licensing rest on the exclusivity that patents provide. A patent holder who can credibly exclude competitors from practicing a patented technology holds significant negotiating leverage with any company that needs to use that technology commercially — particularly when the patented innovation is central to a product category rather than peripheral to it. That leverage translates into licensing fees and royalties when properly exercised through well-structured license agreements that accurately reflect the value of the licensed technology and protect the licensor's rights throughout the license term.
The engineering dimension of patent licensing is frequently underappreciated. Accurately assessing the commercial value of a licensed patent — and therefore what royalty rate is commercially reasonable — requires genuine technical understanding of what the patent claims actually cover in the market context, what alternatives are available to the licensee that would allow it to design around the patent, how central the patented technology is to the licensee's product revenue, and how the patent's remaining term affects its value over the proposed license period. My engineering background in semiconductor manufacturing, optics, and physics allows me to assess these technical dimensions of licensing value accurately for patents in the technology areas I cover — producing licensing strategies and agreement terms that reflect the technology's actual market significance rather than generic royalty structures divorced from technical reality.
Exclusive vs. Non-Exclusive Licensing — Strategic Considerations
The choice between exclusive and non-exclusive licensing is one of the most consequential decisions in patent licensing strategy — with implications for revenue, competitive dynamics, future licensing flexibility, and the licensor's own freedom to practice the licensed technology. The right structure depends on factors that are specific to each licensing situation and that require careful analysis rather than reflexive application of a standard approach.
Exclusive licenses command premium royalties because the licensee receives something genuinely scarce — the exclusive right to practice the technology, which means competitors cannot obtain licenses. The licensee's willingness to pay an exclusive premium reflects the competitive advantage the exclusivity provides. For licensors, the exclusive structure maximizes per-license revenue but sacrifices the ability to collect royalties from multiple licensees simultaneously. The net revenue comparison between one exclusive license at a premium royalty and multiple non-exclusive licenses at standard royalties depends on the technology's relevance to multiple potential licensees — a technology that is valuable to one company in a highly specialized application is often better licensed exclusively, while a technology that is valuable across a broad industry may generate more total revenue through multiple non-exclusive licenses.
Exclusive licenses also require careful drafting of the minimum royalty and milestone provisions that protect the licensor if the licensee fails to exploit the licensed technology aggressively. An exclusive license without adequate minimum royalty provisions or commercialization milestones can lock the licensor into a relationship where the licensee holds the exclusivity without paying meaningful consideration — a situation that can be difficult to exit without litigation over the license termination provisions. I draft exclusive license agreements with enforcement-oriented commercialization provisions that protect the licensor's interest in active exploitation of the licensed technology while giving the licensee sufficient commercial flexibility to execute its product development plan.
Royalty Structures — Designing Commercially Optimal Arrangements
Patent royalty structures are more varied and more customizable than most IP discussions suggest — and the right structure for a specific licensing arrangement depends on the technology's commercial characteristics, the licensee's business model, and each party's risk tolerance and cash flow considerations. Designing the royalty structure as a negotiated economic arrangement rather than accepting a default approach produces licensing agreements that are more commercially sustainable for both parties and therefore more likely to produce the long-term licensing relationship that maximizes total value.
Running royalties — a percentage of net sales of products practicing the licensed technology — are the most common royalty structure and work well when the connection between licensed technology and product revenue is clear and auditable. The royalty rate for running royalties varies significantly by technology area and industry — from a fraction of a percent for commodity technology patents to double-digit percentages for patents that provide genuine competitive differentiation in high-margin markets. The royalty base definition — what counts as net sales and what deductions are permitted — is as important as the rate, and licensors should resist broad net sales deductions that erode the effective royalty rate below the nominal rate negotiated.
Lump-sum payments — a single upfront payment covering the full license term — provide the licensor with immediate cash certainty but require accurate valuation of the patent's full commercial value at the outset of the relationship, before the technology's market success is fully known. Hybrid structures combining a reduced upfront payment with lower ongoing running royalties — sometimes called a running royalty with a signing fee — allocate risk between the parties in ways that can make economically difficult deals possible by reducing the licensee's upfront cash burden while preserving the licensor's participation in the technology's commercial success. I design royalty structures that achieve both parties' economic objectives rather than defaulting to standard templates that may not fit the specific commercial context.
Field of Use and Territory Restrictions — Portfolio Optimization Through Licensing
Field of use and territorial restrictions in patent license agreements allow patent holders to license the same technology to multiple parties in non-competing contexts — maximizing total licensing revenue while avoiding direct competition between licensees that might otherwise refuse to participate in a licensing program. For patent holders with technology that has applications across multiple industries or geographic markets, field-limited and territorially-limited licensing is a powerful portfolio optimization strategy.
Field of use licensing divides the commercial landscape into discrete segments — by industry, application, customer type, or product category — and licenses the same technology separately to different parties in each field. A sensing technology patent might be licensed to one company for automotive applications, another for industrial process control, another for medical devices, and another for consumer electronics — with each licensee receiving field-limited exclusivity in its own segment while the patent holder collects royalties from all four licensees simultaneously. Designing field definitions that are commercially meaningful — clearly separating licensee markets without inadvertent overlap that creates disputes — requires both legal precision in the license drafting and genuine technical understanding of how the patented technology applies across different commercial contexts.
Territorial licensing creates geographic divisions that can reflect the patent holder's ability to enforce its patents in different markets, the different competitive dynamics in different geographic markets, and the organizational structure of potential licensees who may have distinct entities for different regional operations. For US patent holders licensing to multinational companies, territorial provisions must account for the fact that a US patent only covers activities in the United States — activities in foreign markets require licenses to foreign counterpart patents if they exist, or operate outside the scope of a US-only license. I advise patent holders on field of use and territorial licensing strategy and draft license agreements that implement those strategies with the precision needed to avoid the definitional disputes that field-limited and territorially-limited licenses frequently generate.
Licensing Agreement Negotiation — Protecting the Licensor's Position
Patent license negotiations involve a specific set of commercial pressure dynamics that experienced licensing counsel navigates with strategies that inexperienced counsel may not anticipate. Potential licensees frequently use several well-established negotiating tactics — questioning the validity of the licensed patents, arguing for design-around freedom that limits their need for the license, proposing audit and reporting provisions that are operationally burdensome, and seeking license terms that limit the licensor's ability to assert the licensed patents against the licensee's affiliates or successors.
Patent validity challenges in licensing negotiations deserve direct and informed response rather than defensive deflection. A licensor whose counsel can assess the specific validity arguments being raised — identifying whether they are substantively meritorious or merely negotiating postures — is in a fundamentally stronger negotiating position than one who must treat all validity challenges as uncertain. My engineering background and 17 years of prosecution experience allow me to assess validity arguments against the licensed patents at a technical level, distinguishing legitimate prior art concerns that should affect license terms from tactical validity challenges that do not reflect genuine invalidity risk.
License agreement provisions that protect the licensor's long-term interests — and that licensee counsel routinely attempt to weaken in negotiations — include audit and inspection rights that provide meaningful financial transparency, most-favored-nation clauses that protect against discriminatory royalty rates in subsequent licenses, sublicensing restrictions that prevent the licensee from creating a sublicensing program that competes with the licensor's own licensing business, and patent challenge provisions that address what happens if the licensee challenges the validity of the licensed patents during the license term. I negotiate each of these provisions with the licensor's long-term strategic interests in mind — not just the immediate transaction objective of closing a specific license deal.
Inbound Licensing — Evaluating and Negotiating Technology Licenses
Patent licensing is a two-way street — companies that license their own patents outward also regularly need to license patents inward when they receive infringement assertions, when they want access to technology developed by others, or when participation in an industry standard requires licensing from a patent pool or standards-essential patent holder. Inbound licensing negotiations require a different strategic orientation than outbound licensing — the licensee's goal is to obtain the needed rights at commercially reasonable terms while minimizing future exposure from the licensed patents.
Evaluating an inbound licensing demand begins with a technical and legal assessment of the asserted patents — their claim scope, validity risk, and actual applicability to the licensee's specific products and processes. Licensees who accept a license demand at face value, without conducting this assessment, consistently overpay relative to the patents' actual value and coverage. A non-infringement opinion or invalidity analysis conducted before entering license negotiations provides the licensee with an informed basis for assessing the licensor's leverage and negotiating terms that accurately reflect the licensed patents' actual risk profile.
Key provisions in inbound license negotiations that licensees should prioritize include broad definitions of licensed products and processes that provide future flexibility, patent exhaustion provisions that ensure downstream customers of licensed products receive appropriate protections, most-favored-customer provisions that protect against the licensor offering lower royalties to competitors, and patent challenge clauses that preserve the licensee's ability to challenge patent validity without forfeiting the license. I represent licensees in inbound license negotiations with the same technical and legal rigor that I bring to outbound licensing — ensuring that the license terms you accept accurately reflect your actual legal obligations and commercial risk.
Contact me at (512) 293-0710 or sconnolly@austin-patent-attorney.com to discuss your licensing situation.
[ Patent Licensing FAQs — Austin, Texas ]
Question: What is the difference between an exclusive and non-exclusive patent license?
Answer: An exclusive license grants the licensee the sole right to practice the invention in a defined field of use or territory — even the patent holder cannot license those rights to anyone else during the license term. A non-exclusive license grants rights to the invention while allowing the patent holder to license the same rights to additional parties. Exclusive licenses command higher royalties but limit your future flexibility. The right structure depends on your commercial goals and the licensee's market position.
Question: How do I determine a reasonable royalty rate for my patent?
Answer: Royalty rates vary significantly by technology area, claim scope, commercial alternatives available to the licensee, and industry norms. Factors include the patent's remaining term, the strength and breadth of the claims, comparable license transactions in similar technology areas, the licensee's profit margins, and the contribution of the patented technology to the overall product value. I help clients develop royalty rate positions informed by comparable transactions and the specific commercial context of their technology — grounded in genuine technical understanding of what the patent actually protects.
Question: Can I license a patent that is still pending and not yet granted?
Answer: Yes — you can license pending patent applications before they are granted. A license covering a pending application should address what happens if the application issues with narrower claims than expected or is ultimately rejected. I draft pending application licenses with appropriate contingency provisions to protect both parties throughout the prosecution process and ensure the license terms accurately reflect the patent protection actually obtained.
Question: What is a technology licensing agreement and how does it differ from a pure patent license?
Answer: A patent license grants permission to practice the specific claims of identified patents — rights that expire when the licensed patents expire or are invalidated. A technology licensing agreement may include patent licenses alongside know-how licenses, trade secret licenses, and technical assistance obligations — creating a bundle of rights that extends beyond what the patents alone convey and that may continue after the patents expire as long as the licensed know-how remains confidential. For technology transfers where the commercial value is as much in the specific technical implementation knowledge as in the patent rights — manufacturing process technology, software architectural know-how, materials formulations — the technology agreement's non-patent components may be its most commercially significant provisions. I draft technology licensing agreements that specifically address the interaction between patent rights and know-how rights — ensuring that royalty obligations, confidentiality terms, and grant-back provisions are coherently structured across all components of the licensed technology bundle.
Question: What is a patent license's interaction with antitrust law in the semiconductor industry specifically?
Answer: Semiconductor patent licensing has attracted significant antitrust attention in recent years — particularly in the standards-essential patent context where Qualcomm, Ericsson, and Interdigital have faced regulatory scrutiny for their licensing practices in wireless technology markets. Antitrust concerns in semiconductor patent licensing arise most commonly in three contexts: FRAND licensing disputes where a SEP holder seeks royalties above what FRAND obligations permit; conditional licensing where a patent holder conditions a necessary license on the licensee agreeing to additional commercial terms beyond the patent license; and portfolio licensing where a licensor packages weak and strong patents together, requiring licensees to take licenses to patents they would not independently seek. For Austin semiconductor companies building licensing programs, I advise specifically on antitrust compliance — particularly for companies whose patents may qualify as standards-essential or whose market position might create antitrust exposure from aggressive licensing practices.
Question: What is a licensing program structure and how do you build one for an Austin patent portfolio?
Answer: A patent licensing program is a systematic commercial effort to generate royalty revenue from patents by licensing them to companies that practice the claimed inventions. Building a licensing program from an Austin patent portfolio involves four sequential steps. First, portfolio assessment — identifying which patents have claims that potentially read on competitor or industry products and evaluating the strength and validity risk of those claims. Second, market analysis — identifying the specific companies whose products may infringe and assessing their licensing posture based on industry knowledge and public information. Third, licensing demand development — preparing technically grounded claim charts mapping patent claims to specific products, conducting reasonable royalty analysis, and developing licensing positions that are commercially credible. Fourth, licensing outreach — initiating contact through appropriate channels, managing negotiations, and executing license agreements. I advise Austin patent holders on the full licensing program development process — providing the technical and legal foundation for licensing positions rather than simply drafting license agreements once demand letters have already been sent.
Question: What is a field of use limitation's impact on a licensee's ability to sublicense?
Answer: Field of use limitations restrict the licensee's right to practice the licensed patent to a defined application area — and those same limitations typically apply to any sublicenses the licensee grants. A licensee with a field-limited license can only sublicense within the permitted field — it cannot grant sublicensees rights that exceed the scope of the licensee's own license. This creates specific practical implications for Austin technology companies that license patents and then build products sold through distribution channels or OEM partnerships where downstream customers may want their own protection. If the primary license is field-limited, the primary licensee must ensure that the field limitation is adequate for all of its commercial activities — including the downstream activities of its distribution partners and OEM customers — or negotiate broader field rights from the licensor before entering commercial relationships that require broader sublicensing capabilities.
Question: What is a performance milestone in a patent licensing agreement and what happens if I miss one?
Answer: Performance milestones in patent license agreements — particularly in exclusive licenses from universities or technology companies — require the licensee to achieve specific commercial development targets by specified dates, such as filing an IND or 510(k) application, achieving a commercial product launch, or reaching a specified revenue threshold. Missing a performance milestone typically triggers one of three consequences depending on the specific license terms: conversion of an exclusive license to a non-exclusive license, allowing the licensor to grant licenses to other parties in the same field; termination of the license entirely; or extension of the milestone deadline through a negotiated amendment, typically with additional consideration to the licensor. Missing milestones is a common issue in technology licensing relationships where commercial development takes longer than anticipated, and I advise licensees to negotiate realistic milestones with adequate buffer at the time of license execution — since requesting milestone extensions after the fact from a licensor who now has leverage is a much weaker negotiating position than building appropriate flexibility into the original agreement.
Question: What is an exclusive license for a specific territory versus a worldwide exclusive license and when does the distinction matter?
Answer: A territorial exclusive license grants the licensee exclusive rights within a defined geographic territory while the licensor retains the right to license others in different territories. A worldwide exclusive license grants the licensee exclusive rights globally — but requires the licensee to pay for and maintain protection in every territory where exclusivity is commercially relevant. For most Austin technology companies licensing technology that has commercial value in specific markets — North America, Europe, and East Asia being the typical scope for technology with global commercial relevance — worldwide exclusive licenses are both more expensive to obtain and potentially wasteful if protection in specific territories is not commercially justified. I advise both licensors and licensees on territory scoping: licensors should retain licensing rights in territories the licensee will not actively develop, and licensees should pay for exclusivity only in territories where the commercial opportunity justifies the exclusive royalty premium over a non-exclusive license in the same territory.
Question: What is a patent license buyout and when is a lump sum better than a running royalty for an Austin startup licensor?
Answer: A patent license buyout — where the licensee pays a single lump sum in exchange for a permanent license or an assignment of the patent rights — eliminates all future royalty obligations in exchange for immediate cash payment. For an Austin startup that holds valuable patents but needs capital to fund operations, a buyout or lump sum license can be more valuable than a running royalty stream that depends on the licensee's commercial success over many years. The right choice depends on three factors: the startup's capital situation and risk tolerance, the licensee's commercial trajectory and royalty payment reliability, and the present value comparison between the offered lump sum and the risk-adjusted present value of the projected royalty stream. A lump sum from a creditworthy licensee providing immediate capital to fund product development may produce more total value for a startup than a theoretically larger running royalty that depends on the licensee's uncertain commercial performance. I help Austin clients evaluate buyout versus running royalty decisions specifically in the context of their capital needs and risk tolerance rather than applying a general principle.
Question: What is a patent license and what rights does it convey?
Answer: A patent license is a grant of permission from the patent owner — the licensor — to another party — the licensee — to perform specific acts that would otherwise constitute patent infringement, in exchange for royalties, other compensation, or other consideration. Unlike an assignment, a license does not transfer patent ownership — the licensor retains title to the patent. A license defines specific boundaries of what the licensee can do: the field of use in which they can practice the invention, the territory where the licensed use is permitted, the term of the licensed rights, and any restrictions on sublicensing to further parties. A patent license that does not specify its boundaries is interpreted broadly, which may or may not serve the licensor's interests depending on their commercial strategy.
Question: What is a cross-license and when is it used?
Answer: A cross-license is a mutual patent licensing arrangement in which each party grants the other party licenses to their respective patent portfolios — typically to allow both parties to practice technology covered by each other's patents without infringement liability. Cross-licenses are common between major technology companies in markets where each major player holds significant patents covering technology that others in the industry practice — semiconductor companies, smartphone manufacturers, automotive technology companies, and wireless communication companies routinely enter cross-license arrangements to manage the mutual infringement risk in their technology ecosystems. Cross-licenses may be royalty-free — with each party granting the other a free license as consideration for the reciprocal license — or may involve balancing payments when one party's portfolio is more valuable than the other's.
Question: What is a sublicense and how does it work in a patent license agreement?
Answer: A sublicense is a license granted by a licensee to a third party — allowing the sublicensee to practice the original licensor's patent technology without going directly to the original licensor for a license. Sublicensing rights are not automatic — the licensee can only sublicense if the original license agreement specifically permits sublicensing. When sublicensing is permitted, the sublicense is typically limited to the scope of the original license — the licensee cannot grant broader rights than they themselves hold. The original licensor typically retains rights against sublicensees for violation of the original license terms. Sublicensing is particularly important in technology ecosystem contexts — where a component manufacturer needs to license downstream to manufacturers who incorporate the component in end products.
Question: What is a running royalty versus a lump sum royalty and which is better for me?
Answer: Whether a running royalty or lump sum structure is better depends on your specific situation as either licensor or licensee. Running royalties provide the licensor with ongoing revenue tied to the licensee's commercial success — higher payments if the licensee does well, lower payments if sales are disappointing — but require auditing mechanisms to verify reported royalty bases. Lump sums provide the licensor with immediate certainty but eliminate upside if the technology proves more commercially successful than anticipated. For licensees, running royalties preserve cash flow — paying only when revenue is generated — while lump sums require an upfront payment regardless of whether the technology proves commercially valuable. I advise clients on royalty structure based on their specific risk tolerance, cash flow situation, and views on the technology's commercial trajectory.
Question: What is an audit right in a patent license and how does it protect the licensor?
Answer: An audit right is a contractual provision allowing the licensor — or an independent accountant on the licensor's behalf — to examine the licensee's books and records to verify the accuracy of royalty reports and payments. Without an audit right, the licensor has no mechanism to verify that the licensee is accurately reporting sales and paying the correct royalties. Audit rights typically specify the frequency with which audits can be conducted, the advance notice required before an audit, the scope of records subject to audit, and the allocation of audit costs — with many agreements requiring the licensee to pay audit costs if the audit reveals a specified underpayment percentage. I draft audit provisions that provide the licensor with meaningful verification ability while setting reasonable procedural limits that protect the licensee from unduly burdensome audit demands.
Question: What is a patent license's survival provision?
Answer: A survival provision specifies which rights and obligations under a patent license agreement continue after the agreement terminates or expires. Survival provisions typically address whether licenses to sublicensees survive termination of the main license, whether royalty obligations for products sold before termination survive, whether confidentiality obligations regarding licensed know-how survive, and whether indemnification obligations for pre-termination activities survive. The survival of sublicenses is particularly important — when a technology has been sublicensed to downstream manufacturers, those sublicensees need to know whether their licenses survive termination of the upstream license or whether they are suddenly exposed to infringement liability if the main license terminates.
Question: What happens to a patent license if the licensed patent is declared invalid?
Answer: The interaction between patent invalidity and license obligations is nuanced. Under the Lear v. Adkins doctrine, a licensee cannot be contractually prevented from challenging the validity of a licensed patent — and if the licensee successfully establishes invalidity, they may be entitled to stop paying royalties. Some courts have held that royalty obligations automatically cease upon patent invalidation — since an invalid patent provides no protection that can support ongoing royalties. Others have found that contract provisions requiring royalties for the license term regardless of validity are enforceable. The specific outcome depends on the license agreement's terms and the applicable court's interpretation. I draft license agreements with specific invalidity provisions addressing what happens to royalty obligations if the licensed patent is challenged or invalidated.
Question: What is a grantback in a patent license and should I agree to one?
Answer: A grantback is a license provision requiring the licensee to grant the licensor a license to improvements made by the licensee to the licensed technology — allowing the original licensor to benefit from the licensee's further development of the technology. Grantbacks range from a non-exclusive license to licensee improvements (generally acceptable) to an exclusive license of licensee improvements (extremely problematic, as it would allow the licensor to prevent the licensee from commercializing their own improvements). Grantbacks can raise antitrust concerns when they give the licensor control over the licensee's improvements that effectively locks out competition in the development of the licensed technology. I review grantback provisions carefully in every license negotiation — mandatory grantbacks to improvements should be non-exclusive at most and should not effectively prevent the licensee from commercializing the improvements they develop.
Question: What is a field of use restriction and how does it affect the value of a patent license?
Answer: A field of use restriction limits the licensee's right to practice the licensed patent to a specific defined application area — for example, a license to use a sensing technology patent only in medical device applications, with automotive and consumer electronics applications reserved for other licensees or the licensor itself. Field of use restrictions allow licensors to grant multiple non-exclusive licenses to different parties in non-competing fields — each licensee gets exclusive rights in their field while the licensor collects royalties from multiple field-limited licensees simultaneously. The commercial value of a field-limited license depends on how broadly and clearly the permitted field is defined — a field definition that is too narrow limits the licensee's ability to develop their product, while a field definition that is ambiguous creates disputes about whether specific products fall within or outside the licensed field.
Question: What is a compulsory license and can the government force me to license my patent?
Answer: A compulsory license is a government-mandated license requiring a patent holder to allow use of their patent by a third party — often the government or a government-designated entity — without the patent holder's voluntary consent. In the United States, the federal government has broad rights to use any patented invention under 28 U.S.C. § 1498, with the patent holder's remedy limited to reasonable compensation rather than injunctive relief. In other words, the federal government can practice any US patent it chooses — it simply must pay reasonable compensation. Additionally, the Bayh-Dole Act's march-in rights allow the government to require licensing of federally-funded patents to additional parties if the patent holder is not adequately commercializing the technology. Internationally, many countries maintain compulsory licensing authority for public health emergencies and other national interest situations. For most private commercial patent holders, compulsory licensing is not a practical concern in US domestic commercial contexts — but it is a relevant consideration for pharmaceutical, medical device, and defense technology patent holders whose innovations may attract government attention.
Question: What is a patent license's relationship to antitrust law?
Answer: Patent licensing arrangements can raise antitrust concerns when they are used to extend patent rights beyond their legitimate scope or to coordinate competitor behavior in ways that harm competition. Specific licensing arrangements that attract antitrust scrutiny include tying arrangements — requiring a licensee to purchase additional products or licenses as a condition of receiving the desired patent license; exclusive dealing arrangements — requiring a licensee to deal exclusively with the licensor and not license competing technology; horizontal price-fixing — using patent licenses to coordinate pricing among competitors; and field of use restrictions and territorial restrictions that, in certain contexts, can raise market allocation concerns. The analysis of whether a specific patent licensing arrangement raises antitrust concerns requires case-specific analysis under the rule of reason — most patent license terms are procompetitive and lawful. I advise patent licensors and licensees on antitrust compliance in licensing arrangements, particularly in situations involving industry-standard licensing programs, cross-licensing arrangements among competitors, and patent pool licensing.
Question: What is a patent exhaustion doctrine and how does it affect downstream licensing?
Answer: The patent exhaustion doctrine — sometimes called the first sale doctrine — provides that once a patent holder authorizes the sale of a patented article, the patent rights in that specific article are exhausted — the patent holder cannot assert patent rights against downstream purchasers who use or resell the article. The Supreme Court's Impression Products v. Lexmark International (2017) decision significantly expanded patent exhaustion by holding that an authorized sale anywhere in the world exhausts US patent rights in the sold article. For patent licensing strategy, exhaustion has important implications: a license that authorizes a manufacturer to make and sell patented articles may exhaust downstream patent rights even if the license did not intend to grant downstream customers any rights. I structure patent licenses with exhaustion specifically in mind — ensuring that license grants are scoped in ways that achieve the intended downstream effect while preserving intended rights against unauthorized uses.
Question: What is a patent term extension and how does it affect a licensing agreement's term?
Answer: A patent term extension under 35 U.S.C. § 156 provides an extension of up to five years for patents covering products that require regulatory review — primarily pharmaceutical drugs and medical devices — to compensate for time lost during FDA regulatory review. A patent license that runs for the life of the licensed patent automatically benefits from any patent term extension without requiring amendment to extend the license term. However, if the license specifies a fixed end date rather than tying the term to the patent's expiration, the license may end before the extended patent term — leaving the licensee unprotected for the extension period while the licensor can seek new licensees. For licensing agreements covering pharmaceutical or medical device patents that might qualify for term extension, I draft license terms that reference the patent's actual expiration date — including any extensions — rather than a fixed calendar date, ensuring that the license term captures the full benefit of any regulatory delay compensation.
Question: What is a patent marking notice requirement in a license and what happens if we violate it?
Answer: Many patent license agreements include provisions requiring the licensee to mark licensed products with the applicable patent number — either through physical marking or virtual marking through a URL. These marking requirements serve the licensor's interest in constructive notice — ensuring that potential infringers cannot claim they were unaware of the patent and potentially reducing the licensor's ability to recover pre-notice damages against third-party infringers. Failure to comply with patent marking requirements in a license agreement is a breach of the license that could — depending on the license's remedies provisions — give the licensor grounds to terminate the license or seek damages for breach. More significantly for the licensor, a licensee's failure to mark licensed products can limit the licensor's ability to recover pre-notice damages from third-party infringers — because the marked products are the mechanism through which constructive notice to the market is established. I include clear patent marking requirements in every patent license agreement I draft and advise both licensors and licensees on compliance.
Question: What is a have-made right and why do licensees often insist on it?
Answer: A have-made right is a license provision allowing the licensee to have licensed products manufactured by a third-party contract manufacturer on the licensee's behalf — exercising the licensed right to make through a subcontractor rather than only through the licensee's own manufacturing operations. Without an explicit have-made right, a license that grants the licensee the right to make, use, and sell a patented product may not permit outsourcing the manufacturing function — the licensee cannot practice the right to make through a contract manufacturer. Licensees with outsourced manufacturing models — fabless semiconductor companies, consumer electronics companies that use ODMs, and medical device companies that use contract manufacturers — specifically need have-made rights to operate within their actual business models. I advise licensees to confirm that have-made rights are explicitly included whenever their product will be manufactured by anyone other than the licensee directly.
Question: What is a patent license warranty and what are the licensor's disclosure obligations?
Answer: A patent license warranty is a representation by the licensor about the quality and characteristics of the licensed patent rights — typically including representations that the licensor owns the licensed patents free from encumbrances, that the patents are valid and enforceable, and that the licensor has the right to grant the license being provided. Patent license warranties can expose the licensor to significant liability if the representations prove inaccurate — a licensee who pays substantial royalties for a license to patents that turn out to be invalid, unenforceable, or subject to prior assignments may have breach of warranty claims against the licensor. I advise patent licensors to make only representations they can support based on their actual knowledge of their IP position — providing representations based on knowledge rather than absolute warranties where appropriate, and specifically excluding warranty coverage for validity challenges that arise from prior art not known to the licensor at the time of the license.
Question: How does a patent license address what happens when a new claim issues during the license term?
Answer: Patent applications may have continuation applications pending that can issue as new patents with additional claims after the original license is signed. Whether those new patents and their claims are covered by an existing license depends entirely on how the license agreement's grant clause is drafted. A license granting rights under a specific listed patent number covers only that patent — new patents issuing from continuations are not automatically covered. A license granting rights under a patent family — identified by the original application number or priority chain — may cover continuation patents that issue from the same family. A license granting rights under all patents owned by the licensor related to a specific technology field may cover future patents that meet the description. For both licensors and licensees, the scope of coverage for future patents is a significant commercial issue — licensors want to ensure they can generate additional licensing revenue from continuation patents, while licensees want protection from being surprised by new infringement claims from patents in the same family.
Question: What is a most-favored-nation (MFN) clause — also called a most-favored-licensee provision — in a patent license, and should I request one?
Answer: A most-favored-nation clause — also called a most-favored-licensee provision — is a patent license term requiring the licensor to offer the current licensee terms at least as favorable as the best terms offered to any other licensee for a comparable license. If the licensor subsequently grants a license with a lower royalty rate, broader scope, or other more favorable terms to a third party for substantially similar rights, the provision requires the licensor to offer those same terms to the existing licensee. These clauses are particularly valuable when the licensor is simultaneously licensing the same patents to multiple competing companies — ensuring a licensee who negotiated early doesn't find itself at a disadvantage relative to competitors who licensed later at more favorable rates. Whether to request one depends on the competitive context and how significant licensing cost parity is to your specific situation. I negotiate these provisions for licensees whenever the licensor is running a licensing program for the same patents across multiple companies in the same industry.
Question: What is a license agreement termination provision and what are the practical consequences?
Answer: Patent license termination provisions specify the circumstances under which either party can terminate the agreement before its scheduled expiration — including material breach, insolvency, change of control, challenge to patent validity, or convenience termination on notice. The practical consequences of license termination depend critically on the post-termination provisions: whether the licensee retains any rights to sell inventory manufactured before termination, whether the licensee must cease all use of the licensed technology or only new implementations, what happens to sublicenses granted before termination, and whether ongoing royalty obligations for pre-termination sales survive termination. For licensees that have built significant product lines around licensed technology, termination can be commercially devastating — which is why I negotiate termination provisions that provide reasonable cure periods for breach, limit termination rights to material and uncured breaches, and protect the licensee's ability to fulfill existing customer commitments using pre-termination inventory.
Question: What is a license agreement's dispute resolution provision and why does the choice of forum matter?
Answer: Dispute resolution provisions in patent license agreements specify how disputes between licensor and licensee will be resolved — through litigation in a specified court, binding arbitration before a specified arbitration body, or a tiered dispute resolution process beginning with negotiation and escalating through mediation to arbitration or litigation. The choice of dispute resolution forum has significant practical and financial implications for patent license disputes. Federal court litigation provides access to patent-specific expertise and the right to appeal to the Federal Circuit, but is expensive, time-consuming, and public. Arbitration before JAMS or AAA can be faster, cheaper, and confidential — but arbitration awards are difficult to appeal even when legally incorrect. For international patent licenses, arbitration is often preferred because arbitral awards are more easily enforced internationally than court judgments through the New York Convention. I advise clients on dispute resolution forum selection based on the specific license context, the parties' relative sizes and resources, and the types of disputes most likely to arise.
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Clients negotiating patent licenses often also work with me on:
[Patent Valuation] · [Non-Infringement Opinions] · [IP Agreements & Contracts] · [Freedom to Operate Opinions] · [Fractional IP Counsel]
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Patent Licensing Agreement Services
A granted patent only generates financial return when you enforce or license it — and a well-structured license agreement is the instrument that turns your patent portfolio into revenue.
I offer a free 30-minute consultation to discuss your licensing situation, assess your patent portfolio's licensing potential, and explain what a well-structured license agreement would look like for your specific technology and commercial context.
My engineering background gives me a practical understanding of the technology's commercial value that purely legal licensing counsel may lack — I understand what your semiconductor process innovation or optical sensor technology is actually worth to a potential licensee in the relevant market.
Serving patent holders seeking to monetize their IP and companies seeking to license technology from third parties. Call or text (512) 293-0710, email sconnolly@austin-patent-attorney.com, or fill out the form.
Phone: 512-293-0710
Email: sconnolly@austin-patent-attorney.com
Location: Austin, Texas
Serving Austin, Round Rock, Cedar Park, Georgetown, and all of Central Texas.
USPTO matters are federal — I work with clients throughout Texas and nationwide.