This article examines what a licensee is entitled to do under a licence to use of technology. The rights should be clearly stated in the licence agreement so no disputes can later arise. What constitutes "infringement of patent" is also described here.

Rights Granted by the Licence

Granting a licensee a licence to use a patent or knowhow should be done with care. Too many licences do not say precisely what the licensee may do.

This article examines the license clause. Articles on the duration and territorial scope of the licence appear or will appear elsewhere in this series and those issues are not addressed again here. The article EU competition law and intellectual property covers exclusive licences and what is permissible under EU competition law.

Patents Act 1977

The Patents Act 1977 is a good starting point for the scope of a licence as it sets out what exclusive rights are given to a patent owner. It answers the question of what it means to own a patent.

Infringement of a patent

S60(1) states that infringement covers:

S60(2) provides it is an infringement if someone supplies or offers to supply in the UK a person other than a licensee or other person entitled to work the invention, with any of the means relating to an essential element of the invention, for putting the invention into effect when he knows or it is obvious to a reasonable person in the circumstances that those means are suitable for putting and are intended to put, the invention into effect in the UK. This covers for example making tooling in full knowledge it will enable a patent to be infringed. However this last provision does not apply where a "staple commercial product" is supplied. The theory behind this exclusion is that someone supplying, say, raw steel used in any number of different applications is not going to know about possible breach of patent

Acts done privately are according to S60(5) not a breach if they are done "privately and for purposes which are not commercial", for experimental purposes and certain other reasons.

Exclusive licensee's right to sue

S67 gives the exclusive licensee of a patent the same right to sue as the proprietor of the patent in relation to acts committed after the licence was granted. The proprietor is also made a party to the case but does not have to pay costs or expenses unless he enters an appearance and takes part in the proceedings. Many licences of course have specific provisions dealing with which of the licensee or licensor will bring proceedings and at whose expense.

Licence rights

Using, keeping, making, disposing and importing are key examples of potential infringement of patent. Most licences should state to what extent the licensee is entitled to do each of these things.

Licensee as Subcontractor

Some subcontracting licences are to enable the licensee to make products for the licensor. There is no right to sell the finished products to anyone else. Other licences enable the licensee to use the technology to incorporate it into other products of the licensee but not to enable the licensee to sell the finished product on the open market. The EU competition law regulation 240/96 and European Commission subcontracting notice both allow such restrictions. They are exempted from or not regarded as infringing Article 81 of the Treaty of Rome.

Licensee as Manufacturer and Seller

In Mars v Teknowledge the English court said that anyone purchasing a machine had a right to dismantle it to find out how it worked and could do so without breaching copyright or the new database right (the case did not involve patents). However anyone going further and buying a product to alter it and incorporate it into other products is highly likely to require a patent licence, where the first product is patented.

The licensee manufacturing will therefore need a licence. The licensee who in truth is simply a buyer of goods which it then resells will just need a distribution agreement or right to make one-off purchases of goods, rather than any licence of intellectual property.

What the licence should say

The patent and knowhow licence may provide:

The licence here allows the licensee to make and sell the products. There are many variants in practice and legal advice should be sought.

Further information

For information on the "Licensed Territory" granted under a licence see the Licensed Territory article in this series.

For information on the length or duration of the licence see the Duration of the Licence article later in this series.

Exclusive licences are addressed in the article of this series on EU competition law and intellectual property.

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The opinions expressed in the articles published in this section do not necessarily reflect those of Pharmalicensing or UTEK Corporation. No actions including proposals to or agreements with other companies should be taken by any reader without obtaining specific business or legal advice. Neither the publisher nor the authors accept any liability for any actions or activities undertaken by any reader or other third party as a consequence of these articles or for any errors or omissions therein.