Washington University (in St. Louis) uses a template exclusive license agreement that makes the typical extension to assignment–it grants exclusive rights in making, using, and selling, adds the right to sublicense, and gives the licensee first crack at enforcing the licensed patent(s). There are plenty of other university license templates out there that do the same thing. Let’s see whether the template is an exclusive license or an assignment.
Take a look at the definition of assignment in U.S. patent law. Here’s the definition in 37 CFR 3.1:
Assignment means a transfer by a party of all or part of its right, title and interest in a patent, patent application, registered mark or a mark for which an application to register has been filed.
There are two similar actions that have rather different consequences. One may grant under one’s patent right a license to another to make, use, and sell an invention. Or one may transfer part of one’s right, title, and interest in a patent to another. In either case, the recipient is free of a claim of infringement by the original patent owner. But in the first case, the recipient is a licensee. In the second, the recipient is an owner of rights in the patent.
Here’s how attorneys Bruce Chapman and Keith Fraser put it (“Exclusive Patent License or Virtual Assignment?“):
If an exclusive license agreement is deemed to transfer “all substantial rights” (but not necessarily all rights) in a patent to the licensee, the license is, by operation of law, no longer what it says. Instead of a license, it becomes a virtual assignment of the patent, making the licensee the patent owner.
Chapman and Fraser discuss the Vaupel v. American Trim case (944 F.2nd 870)–one involving a dispute over the assignment of an invention involving weaving technology.
Here’s the Supreme Court on the matter, cited by the Federal Circuit in Vaupel:
The patentee or his assigns may, by instrument in writing, assign, grant and convey, either, 1st, the whole patent, comprising the exclusive right to make, use, and vend the invention throughout the United States; or, 2d, an undivided part or share of that exclusive right; or, 3d, the exclusive right under the patent within and throughout a specified part of the United States. A transfer of either of these three kinds of interests is an assignment, properly speaking, and vests in the assignee a title in so much of the patent itself, with a right to sue infringers; in the second case, jointly with the assignor; in the first and third cases, in the name of the assignee alone. Any assignment or transfer, short of one of these, is a mere license, giving the licensee no title in the patent and no right to sue at law in his own name for an infringement.
The court recognizes three assignment conditions–(1) the whole patent, (2) an undivided share of the patent, and (3) an exclusive right in a given territory. For the Supreme Court, the right to sue for infringement is the telling sign that a transfer of rights is an assignment. Here’s the WU exclusive license template:
9.2. … Licensee will have the right, but not the obligation, at its sole expense, to promptly stop any infringement of the Patent Rights in the Territory and in the Field. Upon receipt of WU’s written consent, such consent not to be unreasonably withheld, Licensee may initiate and prosecute actions in its own name or, if required by law, in WU’s name against third parties for infringement of the Patent Rights in the Territory and in the Field through outside counsel of Licensee’s choice who are reasonably acceptable to WU.
To have this right, the Licensee must be an owner of the patent. And given that the template grants exclusive rights–and in fact “substantially all” rights under WU’s patent(s)–the template license sets forth an assignment. This, despite this language in the license:
2.5 WU retains all ownership rights in the Patent Rights, Technical Information, and Tangible Research Property. Licensee agrees that it will not do any act or thing which would in any way contest WU’s ownership in, or otherwise derogate from the ownership by WU, of any rights in the Patent Rights, Tangible Research Property, and/or Technical Information.
WU cannot simultaneously retain “all ownership rights” in the patents (or patent applications) and also grant exclusive rights with the right to enforce the patents. Which is it? If WU retains “all” ownership, does that mean that the grant is not exclusive? Or that the Licensee has no right to enforce the patents (or grant sublicenses)? If the “all” takes back these substantive portions of the license agreement, that little word all is being mighty clever. To make sense of the template, one has to read “all” to mean “all rights not otherwise conveyed to the licensee”–because clearly some ownership rights are conveyed to the licensee.
But it’s not all that simple. The Vaupel court makes it clear that there are two factors to consider–the intention of the parties and the nature of the transaction:
To determine whether a provision in an agreement constitutes an assignment or a license, one must ascertain the intention of the parties and examine the substance of what was granted. “An assignment of an interest in an invention secured by letters-patent, is a contract, and like all other contracts is to be construed so as to carry out the intention of the parties to it.” Nicolson Pavement Co. v. Jenkins, 81 U.S. (14 Wall.) 452, 456, 20 L. Ed. 777 (1871). One of our predecessor courts has also made this point:
Whether a transfer constitutes a sale or license is determined by the substance of the transaction and a transfer will suffice as a sale if it appears from the agreement and surrounding circumstances that the parties intended that the patentee surrender all his substantial rights to the invention.
The intention of the parties, then, is directed to the substance of the agreement and not to the name given to the agreement or the words used to convey the transfer of rights. That is, the issue is not whether WU intends for a document to be called an assignment, but whether WU intends to transfer substantial rights in the patent to what’s called the Licensee. We might note that it is possible for WU to intend such a transfer of substantial rights and also intend that the transfer be called an “Exclusive License” not an “Assignment.” It is clear from the agreement that substantial rights may be transferred, if for instance, the “field” is pretty much any field having commercial value. That’s a big if, but an easy one to overlook in the rush to secure an exclusive licensing deal.
What’s left is dealing with whether it matters that WU might also intend–and seek concurrence from the Licensee–that the transaction is to be called a license, not an assignment. Such an agreement, however, does not change the intent of the underlying transfer of rights. It merely enforces a naming convention on the document and transaction.
Here’s how the Vaupel court puts it:
It is well settled that ” [w]hether a transfer of a particular right or interest under a patent is an assignment or a license does not depend upon the name by which it calls itself, but upon the legal effect of its provisions.” Waterman, 138 U.S. at 256, 11 S. Ct. at 335. Therefore, the use of the term “exclusive license” in the 1988 agreements is not dispositive; what the documents in fact recite is dispositive.
The title of the document is not evidence for the nature of the transaction. “Exclusive License” does not require one to find that the underlying agreement is not an assignment. In the Vaupel case, the court finds that the transaction involving the inventor Marowsky and Vaupel is in essence an assignment:
However, the term “assignment” has a particular meaning in patent law, implying formal transfer of title. We conclude that the subject agreements here, although not constituting a formal assignment of the U.S. patent, were a grant of all substantial rights and, in accordance with Rule 19, permitted Vaupel to sue without joining Marowsky.
The contractual documents constituted a transfer of all substantial rights under the patent, thereby permitting Vaupel to sue; the agreements expressly granted Vaupel the sole right to sue for all infringements, past, present, and future as well.
The Vaupel court stops short of using the term “assignment” but makes it clear (after a discussion of the joinder rules) that the exclusive license agreement does the same thing as a formal assignment document–assigns substantially all rights to Vaupel, making Vaupel the owner of the invention and therefore has the right to enforce the patent. Other courts–Sharplan and Prima Tek II–make it clear that such transactions are assignments, even if not using “formal” assignment documents.
After all, enforcing the patent is the whole point of the patent right. Enforcement is the distinctive right of the patent owner–the right to exclude others. A license is an agreement by the patent owner not to exercise this distinctive right. To transfer the right to enforce transfers the only thing that really matters in the ownership of a patent. The rest is fluff and bother. Excluding others is the heart. (And not excluding others is often the soul.)
The lesson here: exclusive licenses may have the effect of assignment.