One of the most important clauses in a license agreement is the “grant clause”. The grant clause defines the scope of the legal rights that the patent holder (or “Licensor”) gives to the user (“Licensee”). The scope of the grant clause has significant implications for the commercial use of the invention.
Here is a typical grant clause that could be found in a license agreement – there are many ways to grant rights in a patent; the one below will suffice for illustrative purposes:
First, the grant clause states the license is exclusive. This means that nobody except the Licensee will have the right to make, use, or sell the technology. The parties have agreed that only this one user will have the right to commercialize this invention. This is in contrast to a “non-exclusive” license. A non-exclusive license gives the patent holder the right to grant additional licenses to other users. In some cases, the license can be drafted in a way to start as an exclusive license, then change to a non-exclusive license. This can be conditioned to happen if the user does not meet certain conditions of the license, such as minimum sales requirements. Sometimes, the patent holder agrees to give a time advantage to the first user, then after a year open the market to other users.
Second, the grant clause above states that the license is royalty bearing. This means that the user will pay the licensor a fee for the right to use the technology. Usually, the royalty is paid on a per unit sold basis, although other methods of calculation are possible. The royalty can be paid on a net profit or a gross profit basis. Royalty rates, or the percentage paid per unit, can very greatly depending on the product and industry. The percentage is usually an important focal point of the negotiations.
The grant clause also refers to a specific patent, here fictionally referred to as US Patent No. 9.999.999. It could also refer to several patents, a patent portfolio, or even to just one or more claims to a patent. So a license can grant rights in multiple patents as well as a single patent.
The last part of the clause states the geographical region in which the license is granted. In this case, the grant is in the United States. This can be altered to be a region or territory, or expanded to be global, or a region.
Richard Gearhart, Esq. is the founder of Gearhart Law and the host of a weekly radio show for entrepreneurs called “Passage to Profit”. He has built a firm with an international presence that helps entrepreneurs from around the world with their patent, trademark and copyright needs. Richard commands a breadth of experience that comes from nearly 30 years of practice in the writing and prosecution of hundreds of patents, and in all aspects of Intellectual Property law. In 2022, Richard was recognized by ROI New Jersey as a 2022 ROI Influencer in the Law List category for being one of the best of the best in New Jersey for intellectual property law. Gearhart Law emerged from Richard’s passion for entrepreneurship and startups and his belief that entrepreneurship grows the economy and creates jobs. When we started Gearhart Law, our goal was to help and support the new business ventures of 500 entrepreneurs and inventors. After 12 years, the firm has far surpassed this goal; today, we look forward to helping even more inventors and entrepreneurs get off to a great start and reach their own goals.
