The ability to negotiate a licensing agreement with other businesses is one of the many benefits of investing in research and development. Whether a company does its own research to develop new formulas, products or processes or purchases a concept from a third party, having sole control over a patented idea can lead to multiple potential streams of profit.
Being the only business to put out certain products can mean having a very strong presence on the market. However, competitors will often rush to develop something similar. Rather than waiting for them to undermine the market, many businesses find that it is more lucrative to license patents, possibly even to direct competitors, as that provides a secondary stream of company revenue.
However, when negotiating licensing agreements, either of the two oversights below might eventually lead to litigation between the company that holds the patent and the company licensing the patent. As a result, it is important for interested parties to consider these matters carefully before moving forward.
A need for clear rules about future patent use
There have been many high-profile lawsuits between big companies related to expired or expiring licensing agreements. When an organization is familiar with the details of a patent, it may seek to find a way to work around the licensing agreement rather than renewing it when the time comes. The company licensing a patent will need to carefully comply with antitrust rules.
It is of the utmost importance for organizations to protect what they have invested in research and development from future infringement by parties that negotiate a licensing agreement by including language in the contract that prevents sharing certain details of the agreement or imposes mandatory renewal terms should the company continue using licensed concepts, even with some adjustments, even after the agreement technically ends.
Alternative dispute resolution requirements
Occasionally, the company that holds the patent and the company licensing it may end up in a major disagreement about limits on production included in the contract or other operational details not directly addressed in the licensing agreement. Those disputes could lead to a lawsuit that seeks to terminate the licensing agreement or seek some form of compensation from the patent holder. The inclusion of clauses mandating alternative dispute resolution can be a smart decision, as then representatives from each organization will have to meet in person prior to litigating any matters related to the licensing agreement.
The more thorough and customized a licensing agreement for patented concepts or technology is, the less likely the parties that sign the agreement are to end up embroiled in litigation later. Including the thoughtful terms in licensing agreements is one of many important ways that companies which have invested in research or the acquisition of patents from third parties can safeguard their interests.