A patent is a public document that confers on its owner, usually the inventor unless it is a labor patent, the rights of a private property for twenty years. These rights include the exclusivity of its use and enjoyment, the right to prohibit third parties from using it without their consent, the rights of succession, usufruct and transmission, the latter being the right to assign (sell) and the right to license (lease) those that are the object of our attention.

Article 82 of The Patent Law 24/2015 establishes that both the patent application and the patent are transferable and may be subject to licenses in whole or in any of the powers that make up the exclusive right, for the entire national territory or for a part thereof, which may be exclusive or non-exclusive licenses. Likewise, the rights conferred by the patent or by the application against a licensee who violates the limits of his license may be exercised. This means that the patent can be sold or licensed from the very day the application is filed with the Patent Office and thus the priority is obtained.

The assignment or sale of a patent is not the most widely used means of transmission, since it requires an assessment of the patent based on the benefits that its exploitation will bring throughout its validity. And this is difficult to estimate, since the future ups and downs of the market influence, the fact that the patent may see its novelty weakened by the future conceiving new inventions that present more interesting novel characteristics and, in general, the impossibility of predicting the success of the patent in the market. Another drawback of the assignment is that the assignor, when transferring his industrial property to the assignee, is forced to give up his inventor’s rights, losing the possibility of claiming in the future a fair compensation for these “copyrights”. If we combine these disadvantages with the fact that the patent must be registered in all the countries in which it is intended to be exploited, and that the behavior in each of these markets may be quite different, the problem of valuation becomes even more complicated.

Therefore, the most common way of transmitting the exploitation rights of a patent is the license, by which the licensor receives from the licensee some income, in the context of the industrial property called royalties or royalties, appropriate to the sales obtained, with which the copyright is preserved, and the result is equitable for both parties, as well as feasible. Any of the disadvantages affecting the transfer are remedied, since the profitability of the holding is adapted to the behavior of the market to the benefit of both contracting parties. In addition, the license contract is of extraordinary versatility, it adapts perfectly to all the possible requirements of the contractors and ensures good control of the sale of the licensed product in a changing market that, if the circumstances so advise, can be extended to the necessary extent to the rest of the countries of the world.

Like any contract, the patent license contract must satisfy both parties, and this being due to the struggle of the parties in the negotiation an impossible goal to achieve, I have tried to be equitable by reflecting below the agreements that the parties must negotiate so that the license contract is fair, try to equalize the competing interests and iron out the rough edges that may divide them.

In any patent license contract, it is important to define the licensed product, process, or use, since a single patent may include in its claim’s different edifications of a product if there is a unit of invention. It may also include one or more manufacturing processes and the product or products obtained by that process and even one or more uses of products thus obtained. That is, since the patent is divisible, different licenses can be granted for a single patent or the multiplicity or complexity of the product can be defined in the contract. On the other hand, the license of the procedure for the manufacture of the product can be granted to a manufacturer, the license for the marketing of the product itself to a distributor and for the use of the product to an installation or assembly and maintenance company. An example would clarify these concepts.

Suppose that the licensed patent relates to a manufacturing process of a cooling installation in buildings, the product obtained through that process and the use thereof. The license to manufacture the product according to the process claimed in the patent could be the responsibility of a manufacturer, the sale to a distributor and the use to an assembler who also takes care of its maintenance. It goes without saying that all three licenses may be held by the same person, but in that case royalties for inventor’s rights could be provided for from the manufacturing process, from sale and from installation and maintenance.

On the other hand, the license may be exclusive or non-exclusive and limited to a specific territory. The game that gives this circumstance is wide. At national level it does not present major difficulties, although it is necessary to take full account of sub-license or, in the case of manufacture, subcontracts and to be able to monitor commercial behavior in the market. At the international level it is also advisable to consider the different commercial laws and commercial uses of the different countries and above all to validate the patent in each one of them so that the license contract has full legal force and can successfully face the controversies that come to pass.

If the license is international, it is also advisable to take full account of sub-licenses and any other subcontracts that may arise from them. The licensor must be entitled by the contract to plead just cause as a ground for refusal of a sub-license, meaning all reasonable grounds appropriate to the circumstances on which the licensor, based on deficiencies or irregularities in the economic or legal situation of third parties interested in sub-license, may refuse to subscribe to it by the licensee. It is therefore appropriate to provide that the sub-licenses be formalized by means of a written document and the licensee should be obliged to send a copy of the sub-licenses within a stipulated period prior to the signature, by registered mail to the licensor.

A good sales control policy in the different countries in which the patent is marketed happens because each of the points of sale can be controlled by the owner and thus avoid possible errors, intentional or not, in the sales data. In general, the possibility for the licensor to have access to all accounting records either by auditors or by himself, both licensee and of all sub-licensees, should be reflected in the license agreement. The international licensing must also stipulate what to do with parallel patents, which are those that in some countries protect the same invention, even if they have minor differences related to the absence of harmonization of national industrial property rules.

Licensee shall contract to keep the actual, accurate and accurate records and accounting books in such a way that all data reasonably necessary for the full calculation and verification of the amount’s payable are collected. These accounts shall comprise the balance sheet, profit and loss account and daily book, or equivalents in accordance with generally accepted legislation or accounting principles applicable in the territory of the licensee.

Reliable copies of these statements must be sent to the licensor at certain dates at least once a year, the balance sheet and the profit and loss account in the first half of the year being, as a rule of six months, and in the second half the balance sheet, the annual profit and loss account and the daily book, whatever the physical medium normally used to contain such information. The costs of this activity must be borne by the licensee.

The licensee must permit the licensor or its representative to inspect during business hours, with at least five working days’ notice, records, archives, books, and documentation for the purpose of determining the veracity of amounts paid or owed to the licensor.

To determine the royalties due and in the event of any disagreement regarding the control of the accounts, the parties may agree to an audit by an entity designated by the licensor. To avoid disputes, the cost of such an audit would be paid by the licensee if the result of the audit does not conform to the reality of the payments and otherwise the costs may be borne by the licensor.

The maintenance of patent rights in all countries in which it is marketed is generally the responsibility of the licensor, since the licensor is the registry holder of such rights, although it can be agreed that it is the licensee who is responsible for it on behalf of the licensor, by power of attorney.

The license agreement must make clear and prevent active and passive sales policies from being carried out without the licensor’s consent. An active non-consensual sales policy is defined as any act of export or marketing induced by the licensee that takes place in territories not licensed, whether in response to requests for supplies from users or resellers. The acts of marketing an active sales policy in an unlicensed territory include, inter alia, placing the licensed product on that market, advertising specifically targeted at the population of a specific territory or the establishment of delegations or any type of production and/or marketing base in a territory not covered by the contract.

Passive non-consensual sales policies mean any act of importation or sale in response to uninserted demands made by users or resellers established in territories other than the one licensed.

The contract should also reflect the quality control that the licensor should be able to exercise over the subject matter of the license. To maintain the prestige of the licensed good in the market, it is essential that its quality be preserved. Attached to it must be the mark or marks under which the product or products are put on the market. The licensor may choose to use a single brand, which will help not only to preserve quality and prestige, but also to better identify the product. As guidelines for preserving quality, the following can be specified in the contract:

– Not to carry out a commercial or industrial exploitation of the licensed product that may degrade or denigrate the good image and quality of the product or allow competition to do so. In the latter case, it must denounce unfair competition.

– Respect as a minimum standard of quality of the Product subject to the patent the characteristics of an average product representative of the market and as for the specific ones, those that are transmitted by the licensor.

– Send to the licensor, semi-annually or annually on certain dates, samples of all models of the product. The licensor or his designated person may, upon notification and up to a maximum of twice a year, visit the places where the licensed products are manufactured, deposited, or marketed to verify compliance with the instructions and conditions set out in the contract. The licensee and sublicensees will always allow free access without hindering it. This assumption, like all those affecting sub-licensees, must be reflected in sublicensees.

It is good to provide that the license contract is renewable for a specified period, that it should not exceed five years and that at the end of that period, the contract will be automatically renewed for additional periods of one year, provided that the non-renewal by either party is not reliably denounced, based on just cause, and with a stipulated period of notice. As just cause for non-renewal are understood all those reasonable reasons and appropriate to the circumstances that enable both parties not to renew the contract, and among others:

– If the payment of any amount or amounts due in accordance with the Contract is breached.

– If the obligation to send the accounting books or statements of accounts, relating to the control of the accounts, or the sending of samples relating to quality control, is not complied with.

– Any breach of any material condition of the agreement.

– Those circumstances or facts derived from the economic situation of the exploitation of the object of the contract, from which result some conditions that produce a clear lack of profitability of the exploitation of the licensed object. In this regard, failure by the licensee to fulfil a certain volume of sale detrimental to the interests of the licensor may also be provided as a just cause for non-renewal.

Both know-how and confidentiality must be safeguarded in any patent license agreement. The licensor must provide the licensee with all the know-how at its disposal and aid leading to the exploitation of the licensed product. The licensee must keep secret, even after the termination of the contract, and must not disclose or disclose in any way data, information, technical specifications, systems and in general any mechanism to which it has access under the contract in relation to the patent, except for information of any kind that is necessary to provide to third parties interested in obtaining the rights to exploit the patent. This obligation shall remain in force even after the relationship between the parties has been terminated for any reason for a period of at least five years from the date of termination of the term of the contract.

A good patent licensing agreement should provide those improvements to the patent license contract in the process of execution and exploitation should benefit the licensor. A good solution for this is for the licensee to be obliged to license exclusively and for the entire period of validity of the contract to the licensor the non-dissociable improvements of the patent that have been obtained in the development of the activities necessary for the execution of the licensed product, extending this obligation even to the improvements that are obtained after the validity of the initial patent. In return, mutatis mutandis, the licensor may be obliged to license exclusively in the territory assigned to the licensee the improvements it obtains after the signature of the contract, and for the period of validity indicated therein.

For improvements obtained by the licensor which exceed the validity of the original patent, extensions of the contract may be provided for unless the licensee rejects them. These improvements include patents for addition or any other patent that comes to improve with at least one novelty that involves inventive step the process, product or use of the licensed object.

Regardless of the royalty stipulations, which we will discuss below, the licensee must provide the licensor upon signing the contract with an agreed amount as a security deposit. The normal thing, to avoid controversies and for the sake of reciprocity, is to agree that said amount will be deducted from any amount generated by the activity of the licensee included in the contract, until its amortization, whatever the origin of the payment and that in case the activity of the licensee during the term of the contract does not generate any amount there will be no obligation on the part of the licensor to return the amount delivered in deposit. Likewise, and in case of non-compliance by the licensor, this amount must be refunded by the same. This solution is even-handed and fully satisfies both sides. Of course, another possible formula can be agreed.

In relation to royalties, in case of direct exploitation by the licensee, the amount as a royalty is agreed with the licensor, it will correspond entirely to the licensor. But in the case of sub-licensing or any other means that allows a third party to exploit the licensed patent within the assigned territory, it may be agreed what percentage of the amount agreed with that third party will correspond to the licensee and what percentage to the licensor.

There are times when the licensee to fulfill its objective under the license agreement must even develop the product or products industrially, using the samples, tests, prototypes, and protocols as well as all the information and know-how of the licensor. In such circumstances, it must be provided that if the licensor uses such tests or samples or such improvements in the commercialization of the patent in territories other than the assigned territory and achieves its licensing or assignment, they must pay the licensee the amounts that are agreed at the time by both parties for said license and / or assignment of rights that they have obtained.

Regarding the termination of the contract, the following may be agreed as cases of the contract:

– If licensee violates the obligation of secrecy specified in the contract.

– The termination of the duration of the contract in accordance with what is stated in the corresponding clause.

– The contract may be concluded by the licensor and the licensee after thirty-one days after notification of the existence of an act or acts of default, except that, if the said act of default is remedied by the complained party within thirty days from the date of receipt of the notification of non-compliance, such an act of non-compliance would not constitute grounds for termination of the contract.

– They are also acting of default if any of the parties declares itself insolvent, initiates proceedings of suspension of payment, bankruptcy, or imposes legal proceedings in accordance with the regulations applicable to it so that it is impossible to make the payments indicated in the contract, in addition to the cases of any breach of any material condition of the agreement.

At the end of the term of the Contract or by the termination for any of the causes that put an end to it the licensee will completely interrupt all use of the licensed product for all purposes and without exception, although it may continue to market those products under license in inventory at the date of termination of the contract until it has liquidated said inventory , for which the payment obligations will be maintained for this reason or for debts incurred by the licensee that up to that time remain.

The parties shall not be liable for any breach or delay attributable to a cause of force majeure. Although this term “force majeure” should in no case justify the non-payment of debts by the licensee.

In the event of partial nullity, i.e., the nullity of any of the clauses or part of the contract in one of the designated States or part thereof, this circumstance must not affect the validity or validity of the contract. In such a case, the contracting parties must undertake to renegotiate the part or parts of the contract which, for one, all or part of the designated States, would be declared null and void.

In relation to the personality of the parties, it should be established that changes in personality or status quo that the parties may make in the future will not affect the validity and enforceability of the contract. In this regard, the parties must expressly waive any action resulting from such change in their legal personality with respect to the validity, applicability, or payment of royalties of the contract.

The payment of taxes must be regulated in the sense that it must be the licensee who pays all the taxes and tax burdens imposed on the acts he performs under the contract, and which are imposed on him in accordance with the legislation applicable in the states of the granted territory and under international treaties applicable in tax matters. , in each case.

The domicile of the parties must also be clarified, with both parties designating as their respective domicile for the purposes of notifications the one they state in the header of the contract. In case of modification, the parties undertake to notify the other party within a maximum period of one month by registered mail. It should also be reflected that all payments that the licensee must make under the contract will be made as agreed by the parties and otherwise by bank transfer to the account specified by the licensor. If the latter changes these circumstances, you must notify you by mail one month in advance.

For the settlement of disputes, it may be agreed that any dispute arising from the interpretation or performance of the contract shall be definitively resolved by arbitration of one or more arbitrators within the framework of the Spanish Court of Arbitration in accordance with its Statutes and the Arbitration Rules of the United Nations Commission on International Trade Law.

It is good to agree on a solidarity clause vis-ε third parties, which could be worded as follows: In the event that the licensee closes as a result of its management arising from the contract any operation or agreement of sublicense of the patent, and subsequently there is a claim, demand, complaint or in general controversy arising from the functionality and / or ownership of the patent, the parties agree that together they will face said controversy by deciding the form and terms of their defense and covering the corresponding expenses halfway or in the proportion that is agreed. If, because of such dispute, the licensee and/or the licensors are ordered to pay any amount or to release the payment obligation of the third party in the dispute, the parties hereby agree to assume in the same proportion the payment of such amounts.

Likewise, the licensee must be obliged to provide information to the licensor of all those third parties who, within the geographical scope of the contract, perform any act of infringement of the patent, as well as to collaborate with the latter in the legal proceedings that will be carried out against those third parties.

It is advisable to introduce into the license agreement a clause relating to what in English is called “first refusal”, equivalent to the Spanish right of withdrawal. The licensor undertakes to respect, extend the exclusivity granted and grant the licensee the preferential option of matching or improving the offers of licensing agreements that the licensors receive from interested third parties, which may be limited to certain countries preferred by the licensee. In this regard, the licensor shall communicate to the licensee the content and general conditions of the tenders it receives, and the obligation concerning the licensee shall also expire within a specified period, which could well be two months from the submission of such tenders. After this period, the licensor may enter into such agreements by itself or through third parties as it deems appropriate.

Finally, as a clause for the conclusion of the contract, it could be established that the agreement will not be modified but by means of a written document signed by both parties and that it fully reflects all the agreements and obligations between the licensor and the licensee in relation to the subject matter of the contract, leaving without effect all the previous agreements between them, whether written or verbal.

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