Patent licensing may be achieved in different ways, and patent licenses can be classified as exclusive or non-exclusive.
One needs to look at patent licensing as either “carrot” or “stick” licenses as in the “carrot and stick” analogy.
Carrot Licensing: A “carrot license” applies when the prospective licensee is not already practicing the patented invention and is under no compulsion to take a license. The value proposition goes this way: “My patented technology is better, so by licensing my patent you will sell more products.” Or “My patented technology is cheaper, so by licensing it you will reduce your costs and be more profitable.” Convincing a prospective licensee to take a license is marketing and sales activity.
Stick Licensing: A “stick license” is usually created when the prospective licensee is already using your patented technology – that is, it is infringing your patent. The value proposition here is “Take a license or I will see you in court!” No sales or marketing involved. Keep in mind, however, that every “carrot” license is really a “stick” license in disguise. If there were not the unspoken threat of litigation, who would ever license a patent voluntarily? When a large corporation agrees to license a patent, payment for the patent is usually a lump sum that is based on past use of the patent plus future use of the patent based on projected sales of the product that uses the patent over the remaining life of the patent.
A patent grants its owner the right to exclude others from practicing the patented invention. It does not, as some incorrectly assume, give the patent owner the right to practice his or her patented invention. So licenses need to be understood in this context.
Exclusive license: Under an exclusive license, a patent owner transfers all use of the patent, retaining only title to the patent. The patent owner surrenders all rights under the patent (including the right to sue for infringement and the right to license) to the licensee. The licensee takes the place of the patent owner and acquires the right to sub-license the patent and sue for infringement of the patent.
Non-exclusive license: A non-exclusive license is a promise by the patent owner to not sue the licensee for patent infringement. Some people think that a non-exclusive license gives the licensee the freedom to operate in the technologies and industries covered by the licensed patent, but this may or may not be the case as the licensee’s products might infringe other patents.
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