PATENT LICENSING & COMMERCIALIZATION IN INDIA

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In the Indian regime, a patent is a statutory right granted for a limited period of time (20 years) with respect to an invention to a patentee by the government. As quoted by Abraham Lincoln, “The Patent Office adds the flame of interest to the light of creativity”, a patent is granted in exchange of full disclosure of the patentee’s invention and in conversely the patentee can exclude others from making, using, selling, importing the patented product or process for producing that product for those purposes without his consent.

Commercialization of a patented invention

Simply put, commercialization of a patented invention means to effectuate a mere invention protected under the patent regime to a completed product and/or process for raking in maximum monetary gains out of it. A patent can be commercialized either by the patentee himself (having regards to sufficient production machinery and means available to him) and/or can be sold/licensed by the patentee in a number of ways.

Need for commercializing the patented invention

Although, it is upto the patentee to initiate any such proceedings in order to restrain the unauthorized usage of his patented invention, the patentee may retrospectively choose not to do so. For instance, in 2014, Elon Musk announced that he was “open-sourcing” Tesla’s patents to allow the electric vehicle market to grow more rapidly. However, working and commercialization of the patented invention is crucial both for the companies and research institutes as well as the government’s prerogative and authority for the betterment of its citizens. Protection and enforcement of patent rights contribute to the promotion of technological innovation and to the transfer and dissemination of technology. It facilitates mutual advantage to the producers and the users of technological knowledge in a manner conducive to social and economic welfare. In a nutshell, a balance of rights and obligations is achieved by enforcing the patent rights.

However, significant costs can be incurred in prosecuting, maintaining and litigating patent portfolios. Transforming mere inventions into actual assembly-line products and/or processes by way of licensing, patent enforcement, pooling, selling the patent are the most effective ways to obtain maximum benefit out of the patented invention. Thus, commercializing the patented invention is a crucial aspect to be considered by the patentee.

Onus of working the patented invention in India

Section 83 of the Indian Patents Act, 1970 specifically provides that patents are granted to encourage inventions and to ensure that the inventions are worked in India on a commercial scale and to the fullest extent that is reasonably practicable without undue delay. Moreover, it is clarified that patents are not granted merely to enable patentees to enjoy a monopoly for the importation of the patented article. Furthermore, section 146 of the Act requires the patentee to furnish such details in the form of working statement to establish an extent to which the patented invention has been commercially worked in India during a financial year. Such a working statement has to be mandatorily submitted before the end of financial year September (the extended deadline being 30th September).

The granted patent can be revoked by the Controller as per Section 85 of the Act, if the patented invention is not worked within the territory of India, or if the reasonable requirements of the common public from the granted patent are not being met, or the patented invention is not available to the common public at a reasonable and affordable price.

Ways of commercializing the patented invention

Fig. Means to Commercialize the patented invention

A patented invention can be commercialized either by selling the patent, licensing the patent (depending on the terms of the license) and/or self-manufacturing or outsourced manufacturing.

Selling the Patent

The patentee and/or the licensor may sell their patent if the focus of the organization is towards research and development, and the organization is not ready to undertake the marketing risk. Inventors not having appropriate contacts to manufacture or outsource the patented products will consider selling the patent.

Self-manufacturing or outsourced manufacturing

The patentee and/or licensor may decide to self-manufacture or outsource his patented invention. However, self-manufacturing is successful in a scenario where the invention is novel, and there is a high potential for the success of the invention in the market. The patentee and/or licensor may also outsource the manufacturing process to another company having sufficient technical facility. Outsourcing helps the licensor to sell the product in their brand name without making any investment in the technical facility.

Licensing the patent

Licensing is a process where the patentee and/or licensor gives permission to another entity who can extract benefit from the licensed patented invention. A license agreement is accompanied by some terms and conditions agreed by both the parties, which has a binding effect on them. The contents of the agreement consists of definition of the product, mode of the payment between parties, purpose of the license, validity of the agreement, remedial measures available to either of the parties in case of breach of license terms, and other conditions.

Types of patent licenses

Depending upon the nature of the agreement (terms and conditions of the license) a patent can be licensed in the following different ways:

Fig. Types of patent licenses depending upon the nature of the agreement

A) Exclusive License

  • An exclusive license is the one in which all the patent rights invested in the patentee and/or licensor are transferred to the licensee.
  • Except the title and the right to further transfer the patent rights, the licensee derives all the other patent rights as that of the patentee himself.
  • The scope of patent infringement is minimal as the patent rights are efficiently exploited by the licensee and the licensee enjoys utmost monopoly over the market.

B) Non-exclusive License

  • A non-exclusive license is the one in which the licensee has the right to sell and make the patented design, but such right is not exclusive.
  • The patentee and/or licensor may grant permission to use and make the patented invention to any other person as well other than the licensee.
  • The rights enshrined by a non-exclusive license are not exclusive to a particular licensee.

C) Sub-license

  • A sub-license is the one in which the license for the patented invention is issued by the licensee (who has in turn derived patent rights from the patentee) to different organizations to effectuate the patented invention.

D) Cross License

  • A cross-license is the one in which the license different licenses are exchanged between different patentees and or licensors (a patent pool).
  • The first patent pool was formed by Grover, Baker, Singer, and Wheeler & Wilson in 1856 for sewing machines.

E) Compulsory License

  • A compulsory license is the one in which the government grants a non-exclusive license to an applicant to use, sell or make a patented invention, irrespective of the will of the patent owner, for the greater good of the public.
  • Provisions relating to compulsory licensing in India are provided in Sections 82 to 94 of the Act.
  • The first compulsory license in India was granted to Natco Pharma Ltd. for producing a generic version of Nexavar which was a patented medicine of Bayer Corporation on March 9, 2012.

 

Licensing a patented invention can confer a number of benefits to the patentee and/or licensor. In particular, licensing the patent can reduce the risks associated in the production of the patented invention for the patentee and/or licensor. Importantly, if the patent is licensed to an already established organisation with a large customer base, the patented invention will have a larger market to capture in comparison to other patents, giving it a competitive edge over other patents. However, there are a few drawbacks associated with licensing the patented invention. Firstly, determining the appropriate licensee for the patented invention is a cumbersome task involving a lot of effort and dedication. In order to maintain the patent reputation and success, it is essential to get a potential licensee and have a structured agreement.