Patent and Trade Mark Attorneys
Case Study 8: The licence negotiation
We were acting for a UK-based licensee in patent licence negotiations. The licensor was a US-based patent owner. The invention to be licensed was the subject of a US patent and an equivalent European patent. Both patents had about five years left to run before they expired.
Licence negotiations had gone pretty smoothly, with each side trading the usual demands and concessions. But every time we revised the draft licence and sent it back to the other side, one revision was always reversed: the patent owner wanted the licence to outlive the patents. As the licence could run for decades, we couldn't agree to that. After all, one needs to have a surviving right to demand a royalty under it.
We had reached an impasse. The message just didn't seem to be getting through. So we picked up the phone to our US counterparts. The conversation went something like this:
"Hello. Why should our client continue to pay the same royalty after the patents have died and everyone else can compete without paying your client a penny?"
"Because your client will receive from our client the ongoing benefit of valuable confidential know-how"
"It's very simple technology: what is this 'know-how' and why is it so valuable?"
"I cannot say as it is confidential, but I can say that the know-how is information crucial to the working of the invention"
"You mean, crucial information that your client has deliberately omitted from its patents?"
"Yeah, erm, I mean no... erm"
"...an omission made despite your client's obligation to disclose the 'best mode' in the US, and that could lead to revocation of the European patent for insufficiency?"
"Erm, let's move on to point 3.2.2..."
Funnily enough, the next draft of the licence we received from the US allowed for termination when the patents expired...