[Ip-health] Grant back provisions in patent licenses, according to David Dykeman
james.love at keionline.org
Sat Oct 29 17:58:04 PDT 2011
One of the issues in the debate over the Medicines Patent Pool licenses
with Gilead concerns the grant back provisions on improvement patents.
This is a 2006 note by David Dykeman (currently a patent lawyer for
Greenberg Traurig), where he talks about the motivations to address this
issue, and the licensing options. Jamie
Monday, March 6, 2006
When licensing out patents, make sure improvements are granted back
By David J. Dykeman
Many patent license agreements fail to address improvements by the
licensee, allowing the licensee to file improvement patents of its own that
may make the licensor's technology obsolete or even block the licensor from
commercializing its own product with the improvements. By including "grant
back" provisions in license agreements, a licensor can ensure that when
licensing out patents covering its technology, any improvements by the
licensee are granted back to the licensor.
A licensor's worst nightmare The following scenario can be a licensor's
worst nightmare. After difficult negotiations, Company A enters into a
patent license agreement with Company B to develop and market its
technology. The license agreement provides Company A with royalties based
on products sold by Company B. Over the next few years, Company B files
patent applications on improvements to Company A's technology.
After being confronted about its improvement patents, Company B explains
that the license agreement make no mention of improvements in the licensed
technology. Company B believes the improvement patents were invented by its
employees alone and Company B is the sole owner. Company B offers to
license the improvement patents to Company A for a healthy royalty. Thus,
not only does Company A lose the rights to the improvements, but Company A
is also in the unenviable position of being blocked from commercializing an
improved - and potentially more desirable - product or forced to pay
royalties to Company B for the improvement patents.
Grant back provisions can help Grant back provisions are often used where
the parties expect that the licensee will improve on the licensed
technology to create a superior product or method. Grant back clauses allow
the licensor to compete in the marketplace on the same footing as the
There are three main types of grant back provisions that vary in the
obligations imposed on licensees. First, "assignment" grant back provisions
require the assignment of any improvement patent from the licensee to the
licensor. The patent may be assigned solely to the licensor or jointly
assigned to the licensor and the licensee. The licensee retains a
non-exclusive right to practice the patented improvement. The licensee may
also be required to notify the licensor before filing any improvement
patent application to evaluate inventorship. Assignment grant back
provisions are unpopular with licensees and may require a lower royalty on
the original license in exchange for the licensee relinquishing ownership
of its future improvements.
Second, "exclusive" grant back provisions provide the licensor an exclusive
right to use or sublicense any patented improvements, while the licensee
retains only a non-exclusive right to practice the patented improvements.
Exclusive grant backs may be silent as to the royalty, list a range of
royalty rates or state that a reasonable royalty will be negotiated by the
parties in good faith.
Third, "non-exclusive" grant backs allow the licensor to practice the
improvement, while the licensee retains title and all other rights.
Non-exclusive grant backs may be with or without royalty. A royalty-free,
fully paid up, non-exclusive license grant back protects against a licensee
filing improvement patents on its own. A non-exclusive grant back is the
most common approach because it is acceptable to licensees and is generally
Legal concerns of grant backs Antitrust concerns have been raised about
assignment or exclusive grant backs as being anticompetitive for inhibiting
innovation. For this reason, grant back provisions have often met
resistance within the pharmaceutical industry, particularly with
discoveries made using research tools. The stronger argument is that grant
backs foster competition by allowing the licensor and licensee to share the
risks and rewards of innovation. Non-exclusive grant backs are virtually
always competitive and unlikely to raise antitrust concerns.
For worldwide licenses, grant back provisions can be problematic in some
jurisdictions, including the European Union. Assignment or exclusive grant
backs of severable improvements or new applications of the licensed
technology may violate European Union technology transfer regulations.
However, non-exclusive grant backs are allowed, and payment of grant back
compensation is permitted.
To avoid legal scrutiny and increase the likelihood of acceptance by
licensees, grant back clauses should generally be non-exclusive and limited
to the scope of the original license agreement. By requiring license
agreements to contain grant back provisions, licensors ensure access to
improvements in the licensed technology which is critical for continued
David J. Dykeman is a partner in the intellectual property department of
Edwards Angell Palmer & Dodge LLP. He may be reached at ddykeman at eapdlaw.com
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