Drafting a Licensing Agreement, A Patentee Perspective

While having an attorney draft a licensing agreement from start to finish would obviously be the best way to proceed, doing much of the work yourself and having an attorney review it is also acceptable. There are some attorneys who will, no doubt, not want to review your work, but there are a number of attorneys that routinely work with independent inventors and understand the need to keep costs down by offering review services, such as reviewing patent applications or reviewing licensing agreements.

If you are going to embark upon the task of creating the first draft of a licensing agreement it is absolutely essential that you stop thinking in terms of a template for a license and start thinking in terms of clauses for a license. Attorneys cringe when they hear someone ask for a contract or license template. The reason for this is every situation is different. Certainly there are standard clauses that need to be there, but a license is just an agreement so it needs to memorialize what you and the other party have or will agree to move forward.

Notwithstanding what is said above, when an attorney drafts a license, most attorneys will start with clauses from other agreements and modify them to fit the situation. That is the way I always draft agreements and that is how my own law school professor taught us many years ago. The best place to start to find sample licensing agreements is at a law library. This is true because the really useful licensing and contract books that attorneys use are also extremely expensive to purchase, sometimes costing as much as $1,000. But don’t worry, you might just be surprised to learn that law libraries are all over the place. Many court houses have at least a modest library, and all law schools have extensive libraries, which is a requirement for ABA approval, which is the holy grail or certifications for law schools. Nevertheless, even a modestly stocked library might be sufficient in a quest for sample licensing agreements, but I would call ahead to see if they have what you need. Law schools will definitely have what you need, but again, call ahead. Some law schools do not let members of the general public use the library.

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What you will need is an encyclopedia of forms. West has an encyclopedia set called West’s Legal Forms. In the Second Edition it is Volume 25 that relates to patents (I know this because I own that volume myself). There are a number of good sample licenses in the West book. If you find a library that has a good intellectual property section (which is becoming easier given the growth of this field of practice) there will be several smaller encyclopedias dedicated to patent licensing, such as Milgram on Licensing. In most libraries the form books will be in one location and the IP books in another location, so be sure to check both locations.

There are also some decent books you can get from your local book store, but these books will not have the amount of information and samples that a form encyclopedia would have. You can also probably find some sample agreements online. Probably the best online examples would come from universities. A lot of universities have sample agreements online. These agreements, however, may not be right for every situation. Frequently universities are licensing early stage technologies, sometimes even before a patent has been obtained. Remember, as you build your draft license you don’t want to copy any single form, but rather go through the examples you can collect and pick clauses (or paragraphs) that seem to fit your needs. So the more examples you have the better.

As for what needs to be in a license, there are a lot of things that do, but definitely pay particular attention to how royalties will be paid. You might want to consider some type of up front guaranteed payment to ensure that you get at least something. Also consider whether the royalty will be paid on profits or net proceeds. It is easy from an accounting standpoint to sweep all kinds of expenses into the equation to show less profit, so many times you will be better off to accept a lesser royalty on net proceeds than a larger royalty on profits. It is also easier from an accounting perspective to just use net proceeds. It is also a good idea to include a clause that allows for some form of an accounting, which will allow you to access the financial records to verify compliance with royalty requirements.