LICENSING OF FUTURE INVENTIONS
Robert J. Yarbrough
Introduction and problem addressed[i]
Creative people and creative organizations are, well, creative. A creative person does not turn off his or her brain just because he or she has created an invention and licensed the rights to that invention to someone else. The creative person likely will create new inventions, including new inventions that are improvements to the licensed invention. Those new inventions may compete in the marketplace with the licensed invention.
A tension exists in the interests of the parties to a license agreement relating to future inventions by the inventor. In a license transaction, it generally is in the interest of the inventor to retain and not to license the rights to future inventions to maintain maximum flexibility on the part of the inventor and to allow the inventor to realize the benefit of his or her creativity.
In a license transaction, the licensee has a real interest in developing and marketing the licensed invention without interference from the inventor. If the inventor patents an improvement to the licensed invention, the new patent will block the licensee from practicing that improvement without an additional license and additional royalties. If the inventor invents and patents a new invention that will compete with the original invention in the marketplace, the value of the license is diminished because the value of the original invention is diminished.
Licensing unrelated future inventions
The courts frown on indefinite licenses of future inventions; that is, of inventions that are unrelated to the original licensed invention. As a result, the license should not include a license of future inventions unrelated to the original invention.
A common practice is to include the term “and improvements” to define the scope of the licensed subject matter. The purpose of the “and improvements” language is to bring future inventions by the inventor on the subject matter of the licensed invention within the scope of the license.
The ‘and improvements’ language may introduce ambiguity into the licensing agreement and may not accomplish the result desired by the licensee or the licensor. The courts generally find that the “improvement” licensed along with the underlying issued patent is limited to any improvement the practicing of which would infringe a claim of the patent. In other words, inclusion of the phrase “and improvements” prevents the licensor from enforcing a blocking patent against the licensee preventing development of the patented invention.
Matters to be negotiated between the parties
Three categories of subject matter to be licensed should be discussed in every license: the “licensed patent,” the “improvement patent” and the “field of the invention patent.” The “licensed patent” is the underlying issued patent that is the subject of the license. The “improvement patent” is a future patent the practicing of which would violate the claims of the licensed patent. The “field of the invention patent” is a future patent that would compete in the marketplace with the licensed patent but would not infringe the claims of the licensed patent. Licensors and licensees should specifically negotiate and agree to licensing terms for any “improvement patent” and any “field of invention patent.” Separate recitation in the agreement of the terms on each, even if that agreement is to exclude one or both categories of future patent rights from the license. Consideration should be stated for each such future invention right.
[i] This memorandum draws heavily on Milton, Hal, “Improvements” in Patent Licenses, AIPLA Journal, Vol. 34, No. 3, Summer 2006. The words are my own, but the ideas are largely Milton’s.