Updated January 01, 2021 at 12:31
Patent holders are entitled to ‘royalties’ for the use and/or sale of their patented inventions. The contractual negotiations and agreements leading up to royalty payments are known as licensing agreements. What if your invention is just patent-pending, and not yet granted patent?
It may be possible to license your patent-pending invention. However, only having a provisional patent application pending may not be sufficient for licensing. Since it is never disclosed to the public – a licensee would have few options in verifying what is actual ‘patent-pending’. A provisional patent application holds an inventor’s place in line for a patent, and provides the inventor with a period of one year to further refine, market, and seek investment for their invention under a “patent pending” status. This affords the inventor some peace of mind, since their patent rights are being held with the provisional patent. Within the one year from the provisional patent filing, however, the inventor would need to file a non-provisional patent application to enter formal patent examination. It is during patent examination where the patent office will decide whether or not you will be awarded a patent.
The inventor and his or her representative may begin to approach companies (or “licensees”) about licensing the patent-pending invention once the patent application enters examination. Since a formal patent is not granted, the inventor may offer discounted royalties to the licensee up until the point of patent grant. The licensee may seek patentability opinions and assessments from licensed professionals. In some instances, the licensee may negotiate a refund of royalties if a patent is never issued.
If a patent is never granted (e.g., the patent office refuses to grant the invention a patent), then the licensees may, in some instances, breach the contract and begin using the invention without paying any royalties. It is for this reason that many patent attorneys prefer to license inventions as “trade secrets” while the licensed invention is still patent-pending. In this way, if a patent is never granted on the invention, the licensee would still need to pay royalties (albeit, discounted) for the trade secrets that they received from the arrangement (and unlike patents, trade secrets, if maintained properly, may never expire!). There are many licensing schemes that may be used to preserve an inventor’s rights while they are still just patent-pending.
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Yuri Eliezer heads the intellectual property practice group at Founders Legal. As an entrepreneur who saw the importance of early-stage patent protection, Yuri founded SmartUp®. Clients he has served include Microsoft, Cisco, Cox, AT&T, General Electric, the Georgia Institute of Technology, and Coca-Cola.