A business can generate revenue from its patents by licensing them. A patent license can be exclusive or non-exclusive, and the process of securing a license can be “carrot” or “stick” as in the “carrot and stick” analogy.
A patent grants its owner the right to exclude others from practicing the patented invention. It does not, as some business executives incorrectly assume, give the business that owns the patent the right to practice the patented invention. So licenses need to be understood in this context.
Exclusive license: Under an exclusive license, a patent owner transfers all use of the patent to the licensee, retaining only title to the patent. The patent owner surrenders all rights under the patent (including the right to sue for infringement and the right to license). The licensee takes the place of the patent owner and acquires the right to sub-license the patent and sue for infringement of the patent.
Non-exclusive license: A non-exclusive license is a promise by the patent owner to not sue the licensee for patent infringement. Some people think that a non-exclusive license gives the licensee the freedom to operate in the technologies and industries covered by the licensed patent, but this may or may not be the case as the licensee’s products might infringe other patents.
Carrot Licensing: A “carrot license” is applicable only when the prospective licensee is not already practicing the patented invention and is under no compulsion to take a license. The value proposition is that your business’s patented technology is better that what the prospective licensee is using, so by licensing your company’s patent, the prospective licensee you will sell more products or be more profitable. Convincing a prospective licensee to take a license is marketing and sales activity.
Stick Licensing: A “stick license” is most often created when the prospective licensee is already using your business’s patented technology (i.e., it is infringing your business’s patent). There is no sales pitch. The options available to the infringer are to either take a license for the patent or face a patent infringement lawsuit. Keep in mind that every “carrot” license is really a “stick” license in disguise. If there were not the threat of litigation, what business would voluntarily license a patent? When a large or publicly held corporation licenses a patent, it is not unusual for payment for the patent to be a lump sum that is based on past use of the patent plus future use of the patent based on projected sales of the product that uses the patent over the remaining life of the patent.
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