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Exclusive or non-exclusive, what’s the right patent license agreement for your business?

Defense laboratories in the United States have invented and patented thousands of new technologies.

When a business seeks to develop a product or service based on intellectual property invented and owned by a branch of the military, they must often first secure a patent license.

A common question for businesses submitting a patent license application is what degree of exclusivity they should seek from the government.

Many companies believe they will need exclusive rights to turn a patented invention into a successful product or service, but this might not always be the case. Here’s why.

Types of patent licenses

Broadly, there are three types of license agreements used to transfer intellectual property rights from a defense laboratory to a business.

An exclusive patent license means that no person or business other than the named licensee can use the intellectual property rights. Under federal law, an exclusive license allows only one licensee to make, use, or sell an invention during a patent’s lifespan for commercial purposes.

Regulations for licensing government-owned inventions require that, before granting an exclusive license, federal agencies obtain and review an applicant’s plans for commercializing the invention, also known as the commercialization plan.

Additionally, the federal agency must publish notice of its intent to grant the exclusive license in the Federal Register, identifying the invention and prospective licensee and providing an opportunity for the public to file written objections within at least a 15-day period.

A non-exclusive license grants the licensee the right to use the intellectual property, but the government remains free to grant any number of other licensees the same rights to make, use, or sell the technology.

A partially-exclusive license agreement limits the licensee’s exclusivity to a particular field of use, geographic territory, or term.

For example, a partially-exclusive patent license agreement might allow a company to use an invention to create medical devices but not for telecommunications.

Partially-exclusive licenses enable laboratories to issue more than one license for the same intellectual property. As with a fully exclusive license, all partially-exclusive licenses must be advertised in the Federal Register for a 15-day period.

Why your business might not want or need an exclusive license

An exclusive license requires a more robust commercialization plan that justifies why exclusivity is necessary and satisfies federal requirements.

Although a non-exclusive license requires an applicant to submit a well-developed commercialization plan, the requirements are less stringent than those required for an exclusive license.

The government’s staff (Office of Research and Technology Applications) is required to review and confirm that the details of the commercialization plan accompanying an exclusive license application are sufficient to warrant granting an exclusive license.

Time

The government’s review may involve substantial time and multiple requests for the applicant to provide further information, which can increase the time it takes to secure a license. This is rarely the case when a business chooses to use TechLink’s no-cost assistance in preparing a license application.

The reduced requirements for a non-exclusive licensee’s commercialization plan may allow for a more rapid review and recommendation for approval by the government’s staff.

Money

An exclusive license grants a significant bundle of associated rights and there is often an expectation that the financial terms of the license–execution fee, royalty rates, maintenance & annual minimum royalty fees, milestone payments–will reflect this exclusivity.

In recognition of the licensee’s willingness to accept potential competitors, a non-exclusive license will typically cost the licensee less to obtain and maintain.

Privacy

The public notice requirements for granting an exclusive license, i.e., a notice in the Federal Register, may forecast a potential licensee’s business strategy and marketplace ambitions.

Conversely, a business that applies for a non-exclusive license can work with the DoD to maintain the confidentiality of the licensing arrangement, therein shielding the licensee’s business strategy from potential competitors.

In allowing the licensee to proceed in the absence of publicity, a licensee may be able to complete development and be the first to enter and dominate the market as well as obtain a de facto exclusivity for the product or service.

As the Department of Defense’s national partnership intermediary, TechLink’s expert staff of certified licensing professionals are waiting to help your business navigate patent license agreements with federal laboratories.