Should I Assign My Patent?

If you are faced with this dilemma of whether to license or assign your patent, it is most likely the case that you are not quite clear about the difference between the two options and how each decision could affect your prospects of making some money from your invention. Yes, even while your patent application is pending before the patent is actually granted, you have a property right in your invention. You knew that you could choose to keep the rights to your invention for yourself or allow someone else, typically a company to use your rights against appropriate compensation.

You were obviously quite excited on these prospects and that kept you motivated to keep working to perfect your invention to a workable proposition. And, finally you now have in hand a granted patent. By this time, you have also realised the economic realities of the world and the industry to which the product of your patent belongs. That leads you to decide for variety of reasons that you shouldn’t be the one to manufacture, market, and distribute your invention yourself. Nonetheless, you are still convinced that your patent holds a promise of making great financial success.

Eventually, therefore, you are now keen to find a buyer for your patent and you have also got some proposals asking for a license or assignment. Not being sure of what the two situations could lead to, you now turn to your Patent Attorney for help. The rest of this article is aimed at resolving this difference to you, so that you could take the most appropriate decision.

Difference between Licensing and Assignment

The major difference between the two is that in a license the licensor while licensing his intellectual property retains an interest in it, whereas in an assignment the assignor transfers all his rights in the property to the assignee once for all.

Assignment – Some Dos and Don’ts

Unlike license agreement, which provides the licensee a right to use but not to own the patent, an assignment agreement involves a complete and exclusive sale of the rights, thus giving the assignee complete ownership to exploit the patent rights in whatever way it is possible. Usually the assignee will pay the assignor cash or stock consideration in exchange for these rights.

The best advantage of selling your patented invention is that you are guaranteed of a payment right away at the price you and the purchaser of your patent have negotiated. However, the one-time payment is all that you will ever receive for your property. Before entering into any such contract with anyone, it is important to take care of the following:

  1. Before selling all of your rights in a patent, make sure this is the best approach for you and your company. You must have a sound valuation of your invention judged by its market potential. Consider hiring professional help from experts who have technical understanding and industry insight.
  2. Before selling, make sure you really own the patent or patent application. Although this may seem obvious, it is often not quite clear to many inventors who create their inventions as part of their employment.
  3. If you are purchasing a patent instead, complete your due diligence exercise and make sure that the seller actually has complete and unique rights in the offered property. If the applicant is yet to be granted the patent, check if the invention is actually a patentable item and fulfils the criteria for grant of a patent. Again, professional help from a Patent Attorney for this exercise is strongly recommended.
  4. It is important that the assignment deed or agreement be carefully reviewed by both parties which may be over-inclusive to the extent possible covering all possible conditions from both sides. It is often naïve to assume that certain trivial conditions need not be expressed.
  5. It is advisable to have your assignment notarized before it is registered with the Indian Patent Office without which its validity cannot be established.

Types of Assignments

An assignment of patent rights may take many forms such as declaration, deed or an agreement.  The provisions of Indian Patent Act also provide an option for you to mortgage your patent, like any other asset or a property you have against appropriate consideration. Accordingly, your patent rights can be used by the one with whom you have mortgaged your patent right till such time that you pay back and end the mortgage terms.

Patent applications filed in India with Form No. 1 in accordance with Indian Patent Act provide all inventors to declare transferring their rights in favour of the applicant, if inventors themselves are not the applicants and / or under employment contract with the applicant which may be a company, institution, research laboratory or a university. This automatically renders the applicant as assignee  and does not normally require any further agreement or deed to be entered and registered.  The first assignee (the applicant) may, however, further sell his rights to someone else by an assignment deed in favour of the second assignee. Likewise, the second assignee may do the same in favour of the third assignee.

It is important, however, that each assignment deed or mortgage be executed in writing with both assignor and assignee discharging it by signing and registering with the Patent Office to take effect. In absence of proper registration of the assignment deed, it may not be accepted as valid in Indian courts, in case of likely dispute requiring litigation.

Assuming that ‘Assignor’ is willing to transfer his IP rights to a company, referred as ‘Assignee’ in return for both a cash payment and stock shares of the company, described below is a general structure of this assignment agreement covering key essential points in its execution.

Structure of Patent Assignment Agreement or Deed

No. Section Details and Components
1 Introduction of Parties Identifies the document as a patent assignment.

  • Provide date on which the agreement is signed.
  • Identify the parties and describe the type of organizations / individuals engaged in the assignment.
  • The party giving its ownership of rights referred to as “Assignor” and the party receiving the same as “Assignee”; these terms to be used throughout the agreement.
2 Definitions This section is sometimes used to provide “definitions” of the key terms used in the agreement. Terms that can have more than one meaning, such as “assets”, “intellectual property” etc. are defined.
3 Assignment of Patents This part constitutes the assignment by “Assignor” and acceptance of the same by “Assignee”. The property being assigned is not described in the main body of the agreement but provides reference to “Schedule” and explains that the full description is given in the enclosed “Schedule”.A complete and detailed description of the property being transferred is given in the “Schedule”
4 Considerations The agreement addresses here the obligations of each party.  These obligations may be to transfer ownership of property by the “Assignor” and payment of money in cash or kind (usually company shares) by the assignee.The amount money to be paid and other considerations, if any are clearly described together with the timing of the payments, be it at the time of closing or at some later point of time.
5 Deliverables The next paragraph addresses the details of the ‘Closing’, such as the location, date, and what each party shall deliver. The deliverables usually include the shares, and/or patent certificates, IP assignment agreement /deed etc. and any accompanying agreements, if any.
4 Representations and Warranties This paragraph deals with Representations and Warranties, where both parties must warrant that they own that which they purport to transfer to the other party (the stocks and the IP rights), and they are duly authorized and have the requisite corporate power to execute the transaction documents.
Both parties should also warrant that the execution of the agreement will not conflict with any federal, state or local laws, the bylaws of their respective corporation, another agreement, and so on. The parties must lastly promise that the assets to be transferred are own free and clear of any encumbrances, unless provided, and that there are no undisclosed liabilities that could have a material adverse effect on the transaction.The Assignor selling the patent rights specifically promises the following:

  • Assignor(s) is / are the sole owners of the patent transferring their rights to Assignee. Or, if there are other owners who are not transferring their interests, the same may be mentioned clearly.
  • The patent has not been sold / assigned previously to any third party.
  • Assignor has the authority to enter the agreement.
  • Additional representations and warranties, if applicable may also be described here.

The Assignee receiving the patent rights specifically swears in that it has the authority to enter into the agreement and has sufficient funds to pay for the assignment. Additional representations and warranties, if applicable may also be added here.

5 Additional Conditions Several other conditions, subject to mutual agreement may also be mentioned, such as the following:

  • Assignee would not retransfer / reassign or mortgage as collateral for loans, until complete payment under this agreement is made
  • Assignor would help any paperwork needed to complete the assignment with the Patent Office.
  • Assignor will stop using the patented invention being transferred and will not challenge the Assignee’s use after the effective date of transfer of rights.
6 Indemnification A description of each party’s future obligations, in the event of patent under question is found to infringe on a third party’s rights is generally helpful.There are two possible options  i) the Assignor takes all responsibility for infringement, promising to pay all expenses and costs relating to the claim,  ii) the Assignor and Assignee jointly share the costs. The term as agreed between the parties may be mentioned.
7 General Matters Lastly, the parties should agree that the agreement sets forth the entire understanding of the parties and supersedes all prior agreements and may also agree to the following:

  1. Any further amendments must be in writing and signed by both parties
  2. The agreement shall be binding upon each party’s heirs, legal representatives, successors, and permitted assigns.
  3. Finally, it may be stated as to which law will govern the interpretation of the agreement.
  4. And, whether the agreement may be executed in two or more counterparts (such as through email, electronic signatures with both parties not being together in one place), and whether the provisions of the agreement are severable.
8 Schedule Complete description of the patent(s) whose rights are being transferred must be clearly identified. The description may include the drawings, if any and patent application number and other relevant details.

References

  1. Patent Assignment & Guidelines – LegalZoom (http://www.legalzoom.com)
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  3. Warner, Mark (2008); Keys to Drafting Enforceable IP Assignment Agreements, Articlebase, 26 May (http://www.articlesbase.com/law-articles/keys-to-drafting-enforceable-ip-assignment-agreements-576713.html)