A patent assignment is an act by the patent owner in which the patent owner permanently transfers the patent’s exclusive rights to third party (Assignee). This transfer of rights is documented in the official patent record. In a patent assignment, the assignee must pay the assignor a consolidated amount and can collect profits from the patented invention subsequently. This qualifies as a consideration.
Patent licensing allows for the creation of value from innovation as well as the advancement of certain other strategic corporate objectives. Bilateral licensing transactions are the hallmark of the ‘traditional’ patent-licensing industry. It is moreover characterized by consequential transaction costs borne by the parties and information asymmetries that threaten to shrink the market over time. An exclusive license encompasses all of the patent’s rights licensee receives except the title. In this instance, the licensee enjoys the same rights as the patent owner, with the exception of the ability to transfer the patent to another individual or company. This restriction exists simply because even though the agreement allows the rights to be transferred; the patent owner retains ownership of the title.
The rights in lieu of the license agreement are predominately granted to the licensee and in accordance to the terms of the said agreement cannot be transferred further. Ergo, patent licensing is only for a limited term, when the license period ends, the owner reclaims his exclusive rights to his invention.
Professor David Teece asserted in an unconventional paper[1] that the ability to construct value from invention was dependent on interrelate assets like marketing, production, and after-sales assistance. Innovators frequently lack direct ownership or control over these assets, forcing them to license out the commercialization process.[2] Licensing can also be used to impact market demand and competitiveness. Patents are licensed out to restrict competitors from further conducting research and development.
This article states the various practices involving the re-assignment clarifying the ownership of the Patent Agreements.
Infringement Litigation
The patentee (licensor) has the sole right to sue for infringement under the Indian patent system.[3] The only statutory exceptions are the exclusive license and the licensee to whom a compulsory license has been granted.[4] A non-exclusive licensee is not allowed to sue for infringement in his or her own name.[5]
Preventing a third party from infringing on the patent, on the other hand, serves the interests of both the licensor and the licensee. Unlicensed usage by a third party will result in ULR fees being charged to the licensor. Similarly, the licensee will be concerned about an infringing competitor who has not been subjected to ULR payments, the expressions of the mutual interest. It may be however become problematic as the expenses of contesting the infringement are more than the patentee’s personal returns, (s)he may not be motivated to file the claim.
Patent buyouts
At least two instances during the early nineteenth century, when both patents and prizes were employed to encourage discovery, Governments integrated the patent and prize systems by purchasing patents. Patent buyouts are appealing because they provide the chance to eliminate monopolistic pricing distortions and duplicate research incentives while increasing rewards for innovative research. It’s crucial to investigate how they implemented the patent buyouts in practice.
Patents scarcely incentivize original research owing to the fact that potential inventors will not consider consumer surplus while deciding whether or not to pursue it. By purchasing the patent for Daguerreotype photography and releasing the technique in the public domain in 1839, the French government blended aspects of the patent system and direct government sponsorship of research. Daguerreotype photography was quickly embraced over the world after the patent was bought out, and it underwent significant technical advances. Patent buyouts like these have the capacity to eradicate monopolistic price distortions and inefficient reverse engineering incentives while further stimulating original research. Determining the price is a major difficulty for any patent buyout mechanism.
The government would propose to buy out patents at this private value times a fixed markup that would roughly cover the gap between the social and private value of inventions. Inventors could have the option of selling or preserving their patents. Government-purchased patents are usually released into the public domain.
However, in order to encourage auction participants to be honest about their appraisals, the government would select a few patents at random and sell them to the highest bidder. Encouragement of invention through such a process would necessitate greater discretion from government officials than the current patent system, but somewhat less discretion than that exercised by the National Institutes of Health.
Patents also restrict research by generating excessive motivation to produce alternatives for patented assets while providing too little incentive to develop complements. Firms can steal rents from existing patent holders by producing replacement inventions. The minimal information available implies that this issue could be intense. Mansfield, Schwartz, and Wagner (1981) discovered that 60 percent of patented discoveries were reproduced within four years, with the average imitation cost being two-thirds of the original cost of development. Potential complementary invention developers, conversely, will have insufficient incentive to create these inventions if they must first invest in developing supplementary inventions before negotiating license arrangements with original patent owners [Green and Scotchmer 1982]. Sometimes, due to asymmetric information, agreements between owners of complementary patents are not achieved, and inventions go underutilized.[6]
Grant Back
Many patent license agreements fail to address licensee improvements, allowing the licensee to file improvement patents of their own, potentially rendering the licensor’s technology obsolete or even preventing the licensor from commercializing its own product with the enhancements. By including “grant back” provisions in license agreements, a licensor can ensure that when licensing out patents covering its technology, any improvements by the licensee are granted back to the licensor. A licensor can ensure that when licensing out patents covering its technology, any enhancements made by the licensee are granted back to the licensor by incorporating “grant back” terms in license agreements.
Literature in relation to Employee-Employer Patent Ownership
By omitting to add a “deemed ownership” provision in the Patents Act of 1970, Indian policymakers missed the mark. Section 39 of the UK Patent Act, Section 132 of the Israeli Patent Act, and Section 6 of the Chinese Patent Act have all codified similar provisions. This deeming theory is founded on the “duty to invent” principle, which states that a person who has a duty to invent cannot have a patent registered in his name. This premise is based on the idea that if an employee has exploited the company’s facilities, technological know-how, or resources, the employer should not be barred from the benefits.
As a corollary, an employee who created the invention during his or her “course and scope of employment” is unable to get a patent in his or her own name. In Darius Rutton Kavasmanek v. Gharda Chemicals, the Bombay High Court was introduced this argument of “duty to invent.” The court, however, refused to evaluate the issue since it was an injunction appeal, and it could not opine on the merits of the case. In addition to the “duty to invent” argument, the “shop-right” principle, which originated in the United States, can be used to address the ownership problem. Regrettably, it has yet to be implemented in India. Even if there is no agreement for royalties, shop-right is a non-exclusive and non-transferable license with the employer to use the innovation without paying royalties. Even if the employee, who is the patent owner, sells his interest in the patent, the employer retains his shop-right in the patent under this doctrine.
When global firms are involved in Research and development activities and their inventors are Indian employees, the above-mentioned flaw in Indian patent law is very troublesome. According to Section 39 of the Patents Act, any resident of India who applies for a patent or causes an application for a patent to be filed in a country outside of India must first obtain authorization from the Controller of Patents.
For instance, a US corporation wishes to submit a patent in the US, but the inventors are Indian employees who live in the country. It might now be argued that the Indian employees, by their patent assignment agreement, have ‘caused’ the patent application to be filed in the United States, necessitating clearance from the Indian Controller of Patents. This is a significant impediment to the employer-company receiving a patent in a timely manner. Such unnecessary delay in an area as dynamic as intellectual property is likely to have an influence on the utilization of resident Indian personnel for invention. Incorporating such a provision that assigns patent ownership to the employer/company, on the other hand, will go a long way toward resolving such issues.
It’s worth noting that the United States Patent Act makes no mention of patent ownership between employers and employees. However, the courts have established a number of precedents that benefit employers“It is feared that if a corporation is denied the advantages of its success, it would cease to subsidize and experiments will go,” the court held in Goodyear Tyres and Rubber Company v. Miller in the United States. In future judgements, Indian courts could take cognizance of this and set better precedents to potentially enable occlude loopholes in the patent law.
With India’s existing patent ownership framework, the employer bears the threat of not owning the invention despite making significant investments. Employers may be hesitant to invest in research possibilities as a result of this. An equivalent approach in India, as in the United States, the United Kingdom, and other nations, would undoubtedly aid in the resolution of patent ownership disputes between employers and employees. If the invention was developed using the employer’s resources and during the course of employment, the employer should be given a say in the patent, even if there is no pre-assignment / assignment agreement for the same involving the abovementioned principles.
There clearly is a dilemma revolving the true ownership of the Patents developed under employment and the legal literature of various countries reflect the very same. The question of ownership, however, in India remains with the employer (with the assignment of intellectual property in the course of employment) development during an employment.
There is a certain exception which that outruns the private benefit and focuses on public good.
Compulsory License
Compulsory license occurs when the government grants authorization to any individual or organization to use, sell, or manufacture a patented design or product for the public good, regardless of the patent owner’s wishes. Compulsory licenses are commonly given in the pharmaceutical industry and in products that meet the standards set forth in Section 84 of the Patent Act 1970. On March 9, 2012, Natco Pharma Ltd. received the first compulsory license in India for making a generic version of Nexavar, a patented Bayer Corporation drug.
Compulsory licensing is provided under Chapter XVI of the Patents Act of 1970 as an essential precaution for defending the public interest. Any interested party can request compulsory license after three years if the invention is not fairly available to the general public. The central government has the authority to file an application with the controller, requesting that the controller endorse a patent with the ‘license of right’.
The provision of the central government was repealed by the amendment. Furthermore, required adjustments were made with regard to whether the public requirements were fulfilled, if the innovation is not manufactured in India or if the patentee refuses to accord a license, by removing a presumption that the public’s requirements are fulfilled based on local manufacture. The amendment also granted the controller the authority to issue a forced license in the event of a national emergency. There is also a provision that allows a third party to apply for a compulsory license even though the invention is not manufactured in India. This shift also allows the controller to revoke the compulsory license if the circumstances that led to it cease to exist.
In simple terms, the choice to assign or license is based on the most profitable commercialization route available to the patent holder. And, while making a decision, the advantages of receiving royalties or alternatively receiving a lump sum price, giving away title, or simply surrendering the rights to commercialize the invention in a certain location for a set length of time must always be evaluated against one another. Assignment may occasionally seem more beneficial than licensing.
Regardless of the fact that the law safeguards a patentee’s interests, the patent holder must prepare an appropriate assignment or license agreement to avoid any potential disputes regarding the ownership. Intellectual property rights have only recently come to the attention of the general public. Where industrial property is adequately protected, which in turn raises the country’s economy, a comprehensive understanding of intellectual property rights is vital. The entire legal infrastructure was furnished by the Government of India. Software, traditional knowledge, plant varieties, and geographical indications have all been accorded specific legal provisions. Among these provisions, certain remedies are only available to the owner of the intellectual property; hence the determination of ownership and proper re-assignment becomes vital.
Author: Vinita R. Gaud, Pravin Gandhi College of Law
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[1] David J. Teece, “Profiting from Technological Innovation : Implications for Integration, Collaboration, Licensing and Public Policy”, 15 Research Policy 285 (1986).
[2] Ibid. at 296.
[3] The Patents Act, S. 48 (1970)
[4] Id., S.110
[5] Pravin Anand, T. Saukshamaya & Aditya Gupta, India, in Patent Litigation : Jurisdictional Comparisons 201, 203 [Massimo Sterpi et al. (eds.), 2011]; Suchita Saigal, Parul Kumar & Aditya Verma, Licensing Intellectual Property Rights’ Use, in The Law of Business Contracts in India 92, 96 (Sairam Bhat edn., 2009).
[6] The Quarterly Journal of Economics , Nov., 1998, Vol. 113, No. 4 (Nov., 1998), pp. 1137-1167
