In a Patent License Agreement one party (licensor) grants to another party (licensee) for consideration the revocable right to perform an act that would otherwise be illegal without the licensor’s permission.
The act in question is use of the licensor’s patented invention. The grant of permission, called a license, may be exclusive or non-exclusive and is limited in scope and duration.

The licensee receives the benefit of using the licensor’s invention, and the licensor gets a royalty fee for this use. Generally, with certain industries excepted, a licensor can expect to get a fee of five percent of the licensee’s net sales.

Patent License agreements consist of several key provisions:

• The license grant: what is being licensed? To whom? For how long? In what capacity? May the licensee turn around and sublicense the invention to a third party?
• Royalties and fees for maintaining the patent.
• Records and reports-the licensee keeps them, the licensor may view them.
• Improvements-what if the licensee improves the invention? Who benefits?
• Infringement-what if a third party infringes on the patent, particularly if the third party is a sublicensee? Is the licensee obligated to defend the patent? (What if the licensee wishes the patent to fail?)
• Will the invention be marked? How?
• Will the licensee receive know-how and technical assistance from the licensor?
• General boilerplate clauses.
• Companies use patent license agreements for several reasons.
• The licensor may not have the desire to develop the invention-it’s outside the company’s core business.
• The licensor may not have the money, time, or capability to develop the invention.
• The licensee may need the invention to further its own needs.
• The licensee may be better position, financially and operationally, to develop the invention, for the benefit of both parties.

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