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This article is written by Vaishnavi Gowda, pursuing Certificate Course in Intellectual Property Law and Prosecution from LawSikho.

Introduction

This article intends to put forth the meaning of a patent license. Further, it is intended to highlight the scope, requirements and types of licenses for patents in Singapore along with the specific provisions under the patent and civil laws in Singapore since there is still no specific legislation to govern and regulate the same. it is further discussed how such a license would be beneficial to, both, the licensor and licensee and the potential risks involved.

What is known as patent licensing?

A patent is an exclusive right conferred for an invention, which is a product or a process that offers a new technical solution to a problem or provides a new way of doing something in general. Technical information concerning the invention must be made available to the public in a patent application in order to get a patent. In theory, the patent owner has the exclusive right to prohibit or restrict others from commercializing the patented idea. In other words, patent protection prevents others from commercially making, using, distributing, importing, or selling the invention without the permission of the patent owner.

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Licensing is a process in which the product’s owner grants authorization to another entity to profit from the licensed product. Licensing intellectual property (IP) means that the licensor allows the licensee to utilize his assets in a specific way. To be more explicit, the owner keeps an interest in the licensed property, i.e., the benefits from the transfer of his IP while maintaining control, as opposed to assigning IP, in which the IP holder transfers all of his rights, i.e., ownership, to the assignee.

Thus, licensing a patent simply means that the patent owner permits another entity to create, use, or sell his or her patented innovation. This occurs under agreed-upon terms and conditions, which are binding on parties, for a specific purpose, in a specific territory, and for an agreed length of time. The agreement contains provisions related to the determination of the amount, mode of payment to be made by the licensee to the licensor.

The licensee’s freedoms in terms of alteration, sub-licensing, transfer, and so on are limited; nonetheless, the licensor benefits because they retain control over the right in exchange for agreed returns (royalties). Furthermore, it raises the likelihood of realizing the full earning potential of the IP because the penalties of an incorrect property valuation are avoided.

Why does a patent owner license his invention?

A patent owner can license his invention for a variety of reasons, including a lack of funds or manufacturing facilities, so he grants a license to a third party to make, market, and distribute his copyrighted invention in exchange for ‘royalty.’ Alternatively, the proprietor of a patented innovation may have a limited manufacturing facility that is unable to meet consumer demand, so he may license another party to manufacture and sell his product, generating a new source of income for him. It’s possible that the patent owner’s business is limited to a certain geographical location and he wants to expand it.

Patent licensing in Singapore

1. Oral/written contract

It is generally a requirement that a license is in writing to be effective for registered intellectual property rights. However, a license does not have to be entered in any specific format under the Patents Act (hereinafter referred to as “the Act”). An oral license should be enforceable, just as it is in the United Kingdom. Section 6(e) of the Civil Law Act provides that licenses that are not implemented within one year of the agreement must be in writing and signed for them to be effective.

2. Registration

Licenses are registrable transactions when they involve registrable intellectual property rights. A registrable license is ineffective against a person who acquires a conflicting interest in the right in ignorance of the license until an application for registration of the specified particulars of the license is made.
There are statutory limitations on a right to damages or an account of profits for any infringement of a registered patent that occurs after the date of the license but before the date of the application for registration of the license particulars.
Unless a court of law finds it unfeasible, the license transaction must be registered within six months of the transaction, according to Section 75 of the Act. Failure to comply with this legal obligation would hinder the licensee’s right to damages and profits in the event of any infringement that occurred after the license was issued but before the application for license registration.

3. Exclusive license and rights of exclusive licensee

Section 2(1) of the Act allows for exclusive licensing whereby a licensee is granted a license to the exclusion of others, including the Licensor himself. Exclusive licensees have the same legal rights and remedies as the right owner. Such a licensee has rights that are concurrent with those of the right owner, and so both parties have the same rights and remedies; as a result, any one of the two parties may initiate an infringement action in court, individually or jointly.

4. Compulsory License

The Singapore High Court is empowered to issue compulsory licenses. “Any interested person” may apply to the court for a compulsory license under a patent under section 55(1) of the Patents Act. Section 55(1) allows for the application of a license on the grounds that it is necessary to correct an anti-competitive practice.
Section 55(2) explains that, without limiting the provisions of section 55(1), a court may declare that a license is required in the following circumstances:

  • There is a market in Singapore for the patented invention, 
  • That such market,
    • Is not being supplied; or 
    • Is not being supplied on reasonable terms; and
  • The court believes that the patent proprietor has no valid reason for failing to supply that market with the patented invention on reasonable terms, whether directly or through a licensee.

A compulsory license is neither exclusive nor assignable, unless the transfer is in connection with the goodwill of the business in which the patented invention is used, in which case the court may grant permission as per Section 55(4) and (5) of the Act. The court must be convinced that the reasons on which the license was granted have ceased to exist or are unlikely to reoccur in order for the proviso to apply. Section 55(6) of the Act provides that the license payments that must be paid under the compulsory license must be reasonable in price.

Section 56(1) of the Patents Act empowers the Singapore government and any party authorized in writing by the Singapore government to do anything in relation to a patented invention for:

  • A public non-commercial purpose; or 
  • During a national emergency or other circumstances of extreme urgency without infringing on the patent.

5. Parallel imports and exhaustion of rights

Parallel imports or grey market goods are now accepted more in the era of free trade and trade-related intellectual property rights, according to intellectual property regulations.
Parallel imports, sometimes known as “grey-market” goods, is a trade practice in which legally obtained, non-counterfeit goods are imported without the authorization of the IP owner. It is, hence, important to note that it is a defence to infringement to establish that the imported product was created by or with the approval (conditional or otherwise) of the patent proprietor or his licensee, according to Section 66(2) (g) of the Act.

6. Implied license

The doctrine of implied licensing is based on the implication that a license for an intellectual property right is created when a patented product is sold unconditionally. Unless otherwise agreed upon in written terms at the time of sale, this license would grant the product’s purchase the rights to use, import/export, maintain, resale, and so on.
This differs from the American approach of rights exhaustion, in which the IP owner’s patent rights expire with the initial sale, leaving the owner without recourse against contract terms and patent claims.

7. Licensing conduct (Competition and Antitrust Laws)

Considering that IPRs are intended to give an individual right as an incentive for innovation, Singapore also has strong antitrust and competition laws. Certain safeguards against potential anti-competitive behaviour already exist in Singapore’s intellectual property regulations. Certain restrictive licensing requirements are prohibited by the Act, such as banning the licensee from using a competitor’s patented product or process as per Section 55(1) of the Act.

8. Revocation

A bare license may be revoked at any time, or at least with sufficient notice if authorization is issued without any contractual consideration. If the license is contractual, the terms of revocation, as laid down in the contract, must be followed. Revocation is a breach of contract if there is no express or implied right of revocation. The common law remedy for erroneous revocation is damages for breach of contract, however, if there has already been a supposed revocation, equity will prohibit the licensor from revoking the license or treating the licensee as an infringer. However, in instances of licensing where contractual considerations are not present, the foregoing remedies do not apply. In these cases, the license can be revoked at any time.
When a right owner leads another to believe that he will not insist on his stringent legal rights, and the other acts on that belief to his disadvantage, a license by estoppel may emerge. In such a case, the court may rule that the rightful owner was stopped from denying that the other party was licensed, as a result of which the revocation rights may arise.

Conclusion

Thus, when licensing the patent, the licensor will not have to worry about raising funds to promote his product because the licensee will cover the costs of production, distribution, packaging, marketing, and sales, among other things. The licensor’s innovation is marketed faster when he licences it to a well-established company since he will be able to reap the benefits from their knowledge, infrastructure, and engagement which will be most ideal able to get the product into the market more swiftly and easily. Additionally, the licensor’s product (through the licensee and subject to the terms of the contract) will be able to access markets that are closed to imports and this will help save export taxes or lessen risks associated with foreign expansion.

The licensor will be able to generate revenue since the licensee will pay him for the right to hold the patent licence. This could be a one-time payment, a series of payments known as royalties, or a series of payments based on earnings. The licensor retains control of his intellectual property since licensing allows him to grant certain rights to suppliers, competitors, or complementary businesses in exchange for royalties while still keeping ownership of his asset.

By obtaining patent rights, a licensee can; generate new products, services, and market prospects for itself, minimise expenses of acquiring new technologies without having to develop their own, and gain a competitive edge, especially if their licence is exclusive.

Licensing may be profitable and mutually advantageous for both the patent holder and the licensee if done appropriately. However, licencing can increase possible competition and liabilities for both parties, thus potential risks must be considered. Potential dangers and drawbacks of patent licencing include the loss of authority over the invention (partially or completely) relying on the ability of the licensee to efficiently commercialise the patent along with the possibility of bad strategy or execution jeopardising the product’s success or inadequate quality control which could tarnish the brand’s or product’s reputation.

Thus, it is important to put a lot of care into analysing potential licensees and designing the licencing agreement to give the patented product the best chance of success.

References

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