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Introductory example

Technical University X has developed a novel quantum sensor system that can measure magnetic fields with extreme precision and could be used in medical technology and space travel, among other areas.

Since the university itself does not have any industrial manufacturing structures, it is considering collaborating with two large electronics companies, U and V, which have both the production capacities and the global distribution networks.

The university now faces the question of how it can enable industry to use the protected quantum sensor system.

Not every patent holder wants to relinquish the monopoly rights resulting from the patent by selling it. In some cases, only a license to use the patent is granted without transferring ownership of the patent. This is similar to a rental agreement in which the landlord allows the tenant to use an apartment without transferring ownership of it.

In the case of University X, this means that Company V could acquire the quantum sensor technology through a purchase agreement – the university would then be immediately financially secure, but would no longer have any influence or claims. Alternatively, a license agreement could be negotiated so that V is allowed to use the technology while the university remains the owner of the patent. This would allow the university to share in the economic success and also create space for joint further development of the technology. If V were to fail economically, there would also be the possibility of collaborating with other companies.

Scope of the license

A license agreement allows the licensee to use the patented item. Due to the freedom of form of contracts, a verbal agreement is theoretically sufficient. However, to avoid disputes, a written document is recommended.

In many cases, the scope of the license is restricted to avoid competitive situations. For example, a license may be limited to certain products or geographical areas. Such restrictions are generally permissible, but must not violate antitrust or competition law provisions.

V is only interested in use within the EU. Therefore, the license agreement stipulates that use of the patent is restricted to the EU. However, since the university also has property rights in the US and Japan, it retains the freedom to conclude its own agreements there with U. This allows the university to exploit its technology flexibly in multiple ways.

Special types of licenses

A patent holder may grant a license to several persons at the same time. However, if the licensee is granted exclusivity or an exclusive license, the patent holder promises to grant the right to use the invention in question exclusively to the licensee and no one else. Depending on the contract, the patent holder may also be prohibited from using the invention patented by him. An exclusive license grants the licensee almost the same rights as a patent holder, including the right to sue for patent infringement.

Company V is contractually granted an exclusive license for the EU. This secures V the right to be the sole partner to use the technology in the EU. The university is therefore not allowed to grant any further licenses to competitors. V thus effectively obtains the same protection as a patent holder without having to purchase the patent itself.

In addition, the licensee may be granted the right to grant sublicenses or to transfer the license to a third party, provided this has been expressly agreed in the license agreement. A license agreement is generally a personal agreement between the parties, but has no effect on third parties unless it is entered in the patent register.

In V's case, the possibility of granting sublicenses is provided for: he may grant sublicenses, for example to individual companies in certain countries or for specific areas of application. This allows V to generate additional income, possibly even more than he himself pays to the university. At the same time, he retains the right to use the invention himself – as long as he does not grant exclusivity to his sublicensees. This opens up a flexible business model for V, allowing both self-exploitation and cooperation with other partners.

End of license agreements

License agreements can be concluded for the entire term of a patent. However, a shorter term can also be agreed. In addition, termination rights or automatic reasons for termination can be specified directly in the agreement. If the licensee continues to use the invention after the agreement expires, they are committing patent infringement.

V wants to protect itself and use the invention for the entire term of the patent without running the risk of the university terminating the agreement prematurely. For V, planning security means that it can produce and invest in the long term. X University, on the other hand, does not want to be completely bound and wants to be able to terminate the contract at least if V does not pay his fees. In the end, it is agreed that termination by the university is only possible in the event of non-payment. This gives V security for the entire term, while protecting the university from payment defaults.

Consideration for the granting of the license

When concluding license agreements, there is freedom with regard to content, i.e., no party is obliged to conclude a license agreement in a certain way or under certain conditions. The parties are free to agree on the terms of use within a broad legal framework.

In addition to granting rights of use, a license or cooperation agreement may also contain additional obligations on the part of the licensor. These include, for example, the provision of services (e.g., research, development, consulting) or technical support. In addition, it may be agreed that all inventions arising during the cooperation automatically belong to the licensee. Such agreements not only secure the existing technology for the licensee, but also access to future developments.

In the case of University X, a written agreement is concluded with industry partner V. Annual license fees are agreed upon, securing a continuous source of income for the university. In addition, the agreement includes a research cooperation for a new joint project as well as additional advisory and consulting services provided by the university, so that the cooperation brings not only financial but also substantive and strategic advantages.

In certain cases, the patent holder may be forced to conclude a license agreement with a licensee. This applies in particular to so-called compulsory license situations, which play a role in antitrust law. They are intended to prevent market-dominant companies from abusing their position through the exclusive ownership of patents and thereby harming competition or the general public. This is particularly relevant in the case of standard-essential patents: Here, it is not possible to use a technical standard without infringing the patent. In such cases, there is an obligation to grant licenses to all license seekers on fair, reasonable, and non-discriminatory terms (FRAND).

In the case of University X, this means that its technology is standard-essential, so that it holds a dominant market position, just like an exclusive licensee. If a company F requests a license, X is obliged to grant it and may not refuse. This is all the more true given that a recognized medical device standard mandates measurement using the quantum measurement method and there is currently no alternative technology in the standard.

The consideration for granting a license is usually negotiated. License fees are often agreed in the form of cash payments, which can be either a fixed amount or a revenue-based fee. Fixed amounts offer clear calculability, while revenue-based fees take into account the actual success of the product.

This is how the university and company V can agree on a flexible remuneration model: V undertakes to pay the university a minimum amount of EUR 10,000 per year, regardless of how much it earns with the technology. At the same time, a sales-based share of 1% is agreed so that the university also participates in the economic success. In order to limit the risk for V, a maximum amount of EUR 1,000,000 is also set. This way, both sides are protected: X University always receives a basic remuneration, V benefits from predictable costs, and in the event of great success, a fair share goes to the university.

In addition to monetary payments, other considerations can also be agreed upon, such as goods, services, or rights of use. A mutual license agreement is referred to as a cross-license.

U, one of the university's cooperation partners, needs a technology patented by V for a new product. At the same time, V wants to use a technology patented by U. Instead of paying money, both agree to a cross-license: V may use U's invention, while U may use the technology patented by V in return. This way, both sides benefit without having to exchange financial resources.

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