Licence as of Right: 4 Potential Benefits

Introduction:

A licence of right is a statutory mechanism under section 46 of the UK Patents Act 1977 (‘UKPA’) [1] that allows a proprietor to make a patent available for licensing to any interested party.

Once the proprietor has registered that a licence is available as of right, any person is entitled to obtain a licence on agreed terms, or if no agreement is reached, on terms set by the Comptroller, which may be analogous to FRAND (Fair, Reasonable, and Non-Discriminatory) terms in ensuring fairness and reasonableness.

This system may facilitate wider commercialization of patented technology while also providing cost-saving benefits for the proprietor, as discussed below.

What is a Licence of Right?

A licence of right allows any person to obtain a licence under a granted patent.

The proprietor can apply to the UK Intellectual Property Office (‘UKIPO’) using form Patent Form 28 to register that licences under the patent are available as of right, as set out in Rule 43 of The Patents Rules 2007 [2].

Does a Patent Need to Be Granted to Offer a Licence?

As per above, a patent must be granted before a proprietor can offer a licence of right.

While it is possible to license rights under a pending patent application, this typically relates to contractual arrangements rather than a statutory licence of right.

Therefore, a licence of right, as defined in the UKPA, only applies once the patent has been granted and registered as available for a licence of right, accordingly.

Until grant, a patent application confers only provisional rights, which are not enforceable in the same way as rights under a granted patent, or until a patent is granted.

When and Why Would a Proprietor Want to Issue a Licence of Right?

A proprietor may choose to register a licence of right for several reasons:

Firstly, offering licences as of right can encourage wider commercialization of the patented technology by making it more accessible to potential licensees. This can be beneficial if the proprietor lacks the resources to exploit the patent fully.

Secondly, registering a licence of right results in a 50% reduction in renewal fees, which can be a significant cost-saving measure.

Thirdly, a licence of right may serve as a strategic tool in litigation, as infringers who take a licence of right can limit their damages liability to twice the licence fee, thereby potentially avoiding costly disputes. Hence, as stated in section 46(3)(c) UKPA:

where “the defendant or defender undertakes to take a licence on such terms, no injunction or interdict shall be granted against him and the amount (if any) recoverable against him by way of damages shall not exceed double the amount which would have been payable by him as licensee if such a licence on those terms had been granted before the earliest infringement”.

Lastly, by offering a licence of right, a proprietor could avoid the risk of a compulsory licence under sections 48A and 48B UKPA.

Under section 48A UKPA, a compulsory licence may be granted if the patent is not being used to meet demand on reasonable terms, is blocking a technical advance, or is imposing restrictive conditions.

Section 48B UKPA, provides similar grounds for non-WTO proprietors, including insufficient commercial exploitation or unreasonable supply terms, particularly with imports from non-WTO countries.

In summary, by voluntarily offering a licence of right, a proprietor can argue they are already providing reasonable access to the patent, potentially defending against a compulsory licence.

Additionally, registering a licence of right provides the benefit of a 50% reduction in renewal fees which may be the main cost-benefitting reason.

Process for Registering a Licence of Right:

Once an application to register a patent as available for a licence of right is submitted to the UKIPO, the Comptroller notifies any current rights holders of this, including existing licensees and mortgagors, and ensures there are no contractual restrictions preventing the registration, in accordance with Rule 43(2).

The registration is then advertised in the Official Journal.

Effects of Registering a Licence of Right:

Upon registration, any person can request a licence on agreed terms, or if no agreement is reached, on terms set by the Comptroller. Existing licences may be replaced with licences of right if the new terms are more favourable.

If an infringer takes a licence of right, damages are limited to twice the retrospective licence fee. The renewal fee for the patent is reduced by half after registration. The infringer can take a licence of right at any point during proceedings without admitting liability. The reduced renewal fee applies up to the imminent anniversary of the filing date.

Rights of a Licensee Under a Licence of Right:

A licensee under a licence of right agreement may request the proprietor to initiate infringement proceedings. If the proprietor does not act within two months, the licensee may proceed with legal action themselves. In such cases, the proprietor is joined as a co-claimant but is not liable for costs unless they actively participate.

Legal Considerations for Licences of Right:

Any infringer may obtain a licence to avoid an injunction and limit damages, except in cases involving imports from outside the EEA.

Typical licence terms may include royalties based on existing agreements, accounting records, or profit-sharing models. Sub-licensing can be prohibited, as the proprietor may retain the right to set licensing terms.

Cancelling a Licence of Right:

A proprietor can cancel a licence of right by applying with form PF30 at any time after registration, as set out in Rule 43(3) of The Patents Rules 2007. To cancel the licence, the proprietor must pay the balance of previously reduced renewal fees, and any existing licensees must consent to the cancellation.

Alternatively, under Rule 43(4), a third party may apply for cancellation within two months of registration under section 46 UKPA if, for example, they have an agreement with the proprietor that precludes licences of right. This requires submission of form PF2 with supporting documentation.

If the Comptroller grants the third party’s application, the proprietor must pay the balance of previously reduced renewal fees within a specified period. As such, the proprietor’s rights and liabilities are restored as if the licence of right was never registered.

The cancellation decision may be opposed within two months, including by potential infringers or the proprietor if a third party requested the cancellation.

Conclusion:

Licences of right provide a mechanism for making patent licences widely available while offering benefits such as reduced renewal fees. However, proprietors should carefully consider the implications before registering or cancelling a licence of right registration under section 46 UKPA.

L is for Licenses of Right and the strategic flexibility they offer in managing patent rights and reducing renewal costs.

References:

[1] Section 46 UK Patents Act 1977 – Patentee’s application for entry in register that licences are available as of right – https://www.legislation.gov.uk/ukpga/1977/37/section/46

[2] Rule 43 of The Patents Rules 2007 – https://www.legislation.gov.uk/uksi/2007/3291/article/43

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