Exclusive License and Assignment

I have discussed in a number of articles the issue of exclusive license and assignment for inventions. The distinction matters under Bayh-Dole because Bayh-Dole’s standard patent rights clause (37 CFR 401.14(a)(k)(1)) forbids nonprofit contractors from assigning subject inventions other than to an organization that has as a primary function the management of inventions unless it gets federal agency approval, and even then the assignment must carry with it the nonprofit obligations of the standard patent rights clause–including sharing royalties with inventors and using any profits after expenses for scientific research or education–things that might be nice, but not the things that most for-profit organizations are willing to do with their profits from a subject invention.

A transaction becomes an assignment when the patent owner conveys “all substantial rights” in an invention to another. One way to do this is by assigning “title” to the invention. Another way, however, is to exclusively license the rights to make, use, and sell–the substantial rights in the invention.

A slide deck by Joshua Rawson and Thomas Rayski on “Critical Mistakes to Avoid in Intellectual Property Licensing” [since removed from the Dechert site;Wayback Machine archived version here] provides a useful slide that lays out the situation. I’ve messed up their slide by circling the key categories.

I’ve circled the two situations. In one, an exclusive licensee has “all substantial rights” and does not require the patent owner to bring a lawsuit to enforce the patent. In the other, the exclusive licensee lacks “all substantial rights” and the patent owner must join the litigation.

The critical rights that might lead a court into finding that an exclusive license grants all substantial rights are the rights to make, use, and sell, the right to sublicense, and the right to enforce the patent. The conveyance of all substantial rights constitutes an assignment.

Here’s a description from a guide to patent licensing for corporate counsel (my emphasis):

The broadest type of exclusive license grants a licensee the right to make, use, sell, offer to sell, and import the licensed product, or utilize the licensed process, in all relevant territories in all fields of use. This type of all-encompassing exclusive license is akin to an assignment.

“Akin” is a technical word that means here “pretty much the same as.” There are two ways to assign. 1) Assign right, title, and interest to the invention, and the substantial rights are included in the transfer. 2) Transfer the substantial rights, and transfer necessarily involves assignment. Here’s federal patent law (37 CFR 3.1), with my emphasis:

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.

Here is the MPEP on assignment (emphasis in the original):

“Assignment,” in general, is the act of transferring to another the ownership of one’s property, i.e., the interest and rights to the property. . . . An assignment of a patent, or patent application, is the transfer to another of a party’s entire ownership interest or a percentage of that party’s ownership interest in the patent or application. In order for an assignment to take place, the transfer to another must include the entirety of the bundle of rights that is associated with the ownership interest, i.e., all of the bundle of rights that are inherent in the right, title and interest in the patent or patent application.

Here’s the Supreme Court in Waterman v. Mackenzie (138 U.S. 252), from 1891 (citations removed and reformatted for readability).

The patentee or his assigns may, by instrument in writing, assign, grant, and convey, either

(1) the whole patent, comprising the exclusive right to make, use, and vend the invention throughout the United States; or

(2) an undivided part or share of that exclusive right; or

(3) 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.

Various courts, including Surgical Laser Technologies (reviewing a University of Washington exclusive patent license–back when I worked in IP for UW) and Ciba-Geigy v Alza (reviewing a University of California exclusive license), have followed the guidance above and found that an exclusive license that conveys all substantial rights is in fact an assignment. In the Ciba-Geigy case (in which UC had granted Giba-Geigy an exclusive license and then amended the agreement to give its licensee the exclusive right to sue for infringement), the court held:

This Court further finds that its ruling upholds the policy for only allowing an assignee or owner to commence a lawsuit.

That is, if both an exclusive licensee and a patent owner could sue separately for infringement, then an accused infringer could be subject to two suits on the same subject matter. Thus, it must be a single action, whether by the patent owner, the assignee, or both. The court also finds that the exclusive license amounts to an assignment–that’s how Ciba-Geigy has standing to sue for infringement (just as UC apparently wanted when it amended the license agreement).

Rawson and Rayski outline when a license conveys “all substantial rights”:

Given all this, let’s look again at the example exclusive patent license that AUTM posts on its web site for its treatment of those “most critical rights.” Here’s the grant (with my highlight):

Here we see the grant of an exclusive right that recites each of the rights under a patent. Those are “substantial rights.” The license reserves only inconsequential rights:

We will try to overlook the weirdness of how it is that the “Inventors of the Patent Rights” have any standing to reserve any right to use their invention, given that they have assigned their rights to the university. The Surgical Laser Technologies court looked at the reservation of such research related rights and U.S. government rights (licensed under Bayh-Dole’s standard patent rights clause) and determined that reservation of these rights did not constitute “substantial rights.” There’s always the possibility that the court was wrong (or that I’m wrong–hey, this is legal stuff, so why expect things to be, well, rational?). But the general drift is that the sample license grants all substantial rights and the reservations are inconsequential–education-related research, teaching, and whatnot.

Now for sublicensing:

Just a restriction that no sublicense can “transfer the entirety of the rights granted”–so, rather like a prohibition on a particular kind of assignment–an assignment might involve all substantial rights for a specified territory, but not for all territories. So, the U.S. but not Rhode Island, say, or perhaps not Guam.

What about the right to sue?

It’s pretty clear that the license conveys the right to sue. Not only that, but it also gives the licensee the right to settle infringement (say, by granting a sublicense). That puts this sample agreement squarely in the left-hand category in Rawson and Rayski’s slide–the graphic here, to the left.

That is, if the parties clearly intend that the exclusive licensee has the standing to sue in its own name, then they intend the licensee to have “all substantial rights.” And indeed, the license grants the exclusive rights to make, use, and sell (and to import)–what’s left for the licensor? Oh, education-related “uses.” Not substantial.

The sample exclusive license constitutes an assignment. If a nonprofit owner of a subject invention uses a license of this form, it must comply with the standard patent rights clause requirements on assignments at 37 CFR 401.14(a)(k)(1). There are ways to convey exclusive rights that are not assignments, but that would involve a different form of transaction, in which the licensee does not obtain all substantial rights in an invention–the licensee obtains, say, an exclusive license for only a given claim and not for the entire patent and all divisionals, continuations, and continuations-in-part. Or the licensee obtains an exclusive license, following Bayh-Dole’s usage, “to use or sell” but not both. Thus, an exclusive license to sell might be coupled with a non-exclusive license to make and use, reserving for the licensor the right to enforce the patent. Any of these would be exclusive licenses and not assignments. But the licensing practice at many universities is to grant exclusive licenses by means of transferring all substantial rights, and that means by making an assignment, even though the document is labeled “Exclusive License.”


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