This article is written by Somya Mishra, pursuing a Diploma in Intellectual Property, Media and Entertainment laws from LawSikho. Here she discusses the patented process.
What is Process Patent?
A process patent is a form of a utility patent that pertains to the mode or method by which the product is made and involves methods of changing the characteristics or functionality of a product during a particular use. A patent to a process gives exclusive and sole authority to the patentee to own the process and exclude other people from producing, using or selling the patented process.
Object of Grant of Patent
The whole aim of granting patents to an inventor is to encourage inventions and to make sure that the inventions are utilised in India on a commercial scale and to the maximum extent that is rationally practicable without any undue delay. Grant of patents surely doesn’t aim at providing a monopoly to the patentees for the importation of the patented items or process; rather puts an obligation on them to work on the patents on a commercial scale in India.
Ways of gaining profits from Patents
There is not just one, but several ways of gaining profit from a patent. The patent can either be licensed or sold off to a potential buyer and can bring some crazy money to the patentee.
Selling off is a method which may get a quick payoff to the patentee for his invention.
Licensing of the right to make, use or sell the product/process in well-known companies is usually the most lucrative route for inventors. As a patent holder, the ownership of the invention is retained and simultaneously royalty payments can also be earned on future sales of such product/process.
If the patentee doesn’t expose the patent to the public and make it commercially viable, the Government imposes a compulsory license on such patents or may revoke it as well. The Indian Patent Act talks about such provisions under Sec 82 to 98, where the Government exercises such rights. These provisions are enacted only to prevent the abuse of monopoly right granted to the patentee. By such provisions in concurrence with the provisions relating to the use of inventions for the purpose of Government, monopoly on patents will be made to serve national interests and will no longer be considered a handicap to the industrial progress.
Commercialisation of Patents
In order to best commercialise and advertise a patented process, it is important to find the right buyer who is worthy enough to be shared the responsibility with. Below are some of the ways to look for the right buyer and work the patent obtained:
- Look for companies: Research on companies dealing with products which may be workable with the patented process. Target small companies as they have a greater scope of enhancing or improving the functionality or workability of their products. The target can also be put on leading companies if the process is inventive enough to provide them with remarkable improvement in their products.
Another approach for finding the right company would be to identify companies which have previously procured patents in the same class as the target patent, they would be quite the potential buyers.
- Run an ad or put an online listing: Aim at industries that the process patent may be utilised to and then put up trade publications specific to such industries. It may be a great way to catch an eye of the prospective industry. The patent can also be put up in an online patent auction site or a tradeshow publishing it for sale. A large number of interested buyers can be attracted to such publications.
- Elucidate the invention to people: The first stride towards commercialisation is being able to clearly explain the elementary idea or concept behind the process invented. An invention is of no use if it cannot be understood by the target buyer. The patentee should always be ready with a functional prototype of the demonstration to present a proof of concept and get it internally and externally tested. The performance of the patent greatly influences the commerciality of it in the market.
4.Pricing factor: Pricing plays an important role in the success or failure of a patented product or process, whatever the case may be. To develop a process or method with a great potential appeal, the pricing must be strategized carefully. If the price is seen as unreasonable to the perceived value, consumers would not be interested in purchasing even if it may be a better solution that is currently accessible in the general marketplace.
- Market evaluation and validation: The first step to assess the financial viability of a patented process is to ensure that the process has a need in the market and poses a competitive advantage over the already existing methods. After it is validated by industry trials, it is important to work on the target market, pricing structure and strategy to enter the market. That is how the buyers will build confidence over the patent developed and show interest in buying the same. Brokers or intermediaries also play an important role in establishing connections or market the patent to potential buyers.
Based on the above factors when a few potential buyers are achieved, a considerable time is invested towards providing interested buyers with required additional information and negotiating the terms of a potential transaction, evaluating the patented process and assenting on a mutually agreeable value.
Patent Purchase Agreement or License Agreement
In order to effectuate the sale or licensing between buyer/licensee and the seller, it is imperative to memorialize in writing and draft a suitable Patent Purchase Agreement (PPA) or Licensing Agreement, as the case may be, (collectively to be referred as ‘Agreement’). This Agreement sets out the terms of the purchase/license between the seller who owns all rights, title and interests in the patent and a buyer who wishes to purchase those rights or a licensee to whom the license is granted. A written Agreement is a must in the event of conflicts, misunderstandings or litigation regarding the ownership of the patent.
Let’s discuss some of the key elements that must be present in an Agreement while undergoing such a transaction:
- Identification of the Seller and Buyer/Licensee and the Patent product or process sold/licensed: The Agreement should lay down details of the Buyer or licensee and the Seller with all pertinent information related to his legal name, legal address and the current contact information. It must also contain the specifics and description of the Product or process in the subject.
- Type and extent of the right granted (License or ownership) and duration of such right: It would be very vague if the Agreement doesn’t list out the type and extent of the right granted to the buyer/licensee. The Agreement must clearly specify the term of the exclusivity and/or non-exclusivity, and whether the right granted is irrevocable; and if there is a right to grant sublicenses and the duration for which the licensee enjoys the right and whether it is renewable.
- Transmittal of Patents, additional rights and payment: The Seller will transfer the necessary documents to establish a genuine sale of the patent, i.e. the executed assignments, patent history files, list of live and abandoned assets and/or any other original files and documents required. Once the buyer is satisfied with all the facts and documents presented to him, the Agreement can be executed and payment is made in effect to it. Upon execution of the Agreement, all the rights and obligations are transferred from the Seller to the buyer.
- License back to Seller: Upon the closing of the Agreement, buyer grants to Seller and its affiliates, a royalty-free, perpetual, worldwide, irrevocable, transferable, non-exclusive, assignable, sub-licensable license to practice the methods and to make, use, distribute, sell, lease, import, export, develop and/or otherwise dispose of and exploit any Seller products and products of Affiliates of Seller protected by the Patents.
E. Confidentiality of Terms: The parties must agree to a confidentiality clause in the Agreement to ensure that no confidential information is divulged to any third party who is not concerned with the engagement. Through this Agreement, the buyer/licensor discloses all the business plans, trade secrets, etc. that is sensitive information to the licensee and hence must be protected. However, there are certain exceptions wherein the information is mandated by law or otherwise and thus can be disclosed. Such exceptions must also be laid down in the Agreement.
F. Representation and Warranties of the Seller and the Buyer: Both the Seller and buyer must clearly mention the representations and warranties they are guarantying through the Agreement and all in good faith. The parties must ensure and validate the warranties made by their opposite party to effectuate a genuine agreement and avoid any further disputes or misunderstandings.
- Termination rights: Right to termination is very essential when it comes to commercialization of patents. The last thing one would want is getting stuck in an under-performing engagement that is not utilizing the patent to its maximum extent and wasting the market viability of it. Considering this, we must ensure that there is a termination right for convenience and also for cause (if at all the sales does not each a specific threshold or any other material reason whatsoever).
- Limitation of Liability upon breach of any of the terms of the Agreement: It is a mutual right agreed to between the parties, in consideration to the Agreement, to provide damages to the other party in the event of any breach of the Agreement, limited to a specific amount (not more than the purchase amount).
- Governing Law and Dispute Resolution: There must always be a remedy to a situation if something goes wrong. So the Agreement must clearly specify the jurisdiction which would govern the matter, whenever it arises and also carve out a dispute resolution method for solving such matters, before approaching the court.
Selling and licensing of patents is one of the most beneficial means for commercialisation of IPs. However, finding the right buyer and developing various aspects of the sale or license alongside the profit strategies is a tough task and thus various aspects need to be considered before getting into a deal.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.