The patent contract law is a general termof law for regulating the contractual relationship of equal subjects, which regulates the transfer of patents, licensing, pledge and other legal norms. It includes patent law, contract law, and guarantee law. In addition to the provisions of the patent law itself, there are also the provisions on technology transfer contract, technical consulting contract, and technical service contract in the principles of contract law. Besides, the Property Law stipulates that the patent right which a debtor or the third party has the right to dispose of can be pledged. In 2000, the Supreme People's Court promulgated the Interpretation of Several Issues Concerning the Guarantee Law of the People's Republic of China, and it stipulates thatif the pledger of patent right transfers or permits others to use the pledged patent right without the agreement of the pledgee, suchbehavior is invalid. The judicial interpretation of the Supreme People's Court issued in 2001 are mainly some provisions concerning the application of law in patent dispute cases, which stipulates the court jurisdiction of contract disputes. There are more and more laws and regulations that guarantee the implementation of patent contracts. In addition, the various administrative regulations and department rules also provide alegal basis for patent contract.
When signing the patent contract, the licensor should first of all examine the qualifications of the cooperative partner or its credit issues, for example, whether the contract subject is competent. He/she should also investigate the corporate qualification and business scope of the licensee; the licensee of the patent contract may be an enterprise group,if it has a subsidiary,it should specify whether the subsidiary is within the scope of the contract. The licensor should also examine the server equipment, enterprise scale, brand, sales network and technological innovation capability of the licensee which are compatible with implementation of the patent technology.
In addition, the licensor should also conduct a thorough investigation of the patents involved in the contract, so thatat the time of signing the contract, not only the actual amount of products in the contract is determined, but also unnecessary costs and expenditure are reduced, and the scope of the licensed marketis defined. The type of patent licensing should also be considered: whether it is a monopolized license, exclusive license or ordinary license and whether the licensed right is manufacture, use or sale.The parties may adopt the licensing form according to the licensing technical status, price, market, tax and other factors, and determine whether the patent technologyinvolves proprietary technology or technical secrets.
When considering the legal status of the licensor's patent, the licensee should not rely solely on the patent certificate, butshouldalso consult the patent rolls with the National Intellectual Property Administration or ask the licensor to provide a copy of the patent rolls.Although the patent right is effective, it does not necessarily indicate that the technology has patentability. The licensee should know whether the technology is novel and creative and understand the legality and stability of the rights, prior rights, patent family, and value of rights. If the licensor has implemented the patented technology himself, the licensee should know the licensor's market capability including the sales scope of the products, overseas expansion, and market capacity, and should also consider the alternative technologies and matching patent portfolios. Besides, if the licensor himself has implemented the technology, he/she should also consider the loss caused by the shrinkage of its market due to the licensing of the technology. The licensee should pay attention to the fee rate of patent licensing. The reasonable valuation methods mainly include market method, sales return, research and development expenditure, and lost profits. In terms of the payment method, it should make clear whether it is prophase payment, advance payment or minimum guaranteed cost.
For a complete contract, the terms are the basis. The terms of a patent licensing contract can be divided into three categories: commercial terms, technical terms and legal terms. Generally speaking, the terms of a patent licensing contract should include preface, definition, scope of the contract, price, payment, delivery of technical data, guarantee and claim, tax and fee, infringement, resolution of dispute and validationof the contract. The following points should be given special attentions:
(1) Definition terms, such as the definition of licensing, exclusiveness, non-exclusiveness, regional restrictions, scope of application, duration of contract, improvement of technology, mode of payment and fees, guarantee, warrant, compensation clauses, and transfer of license.
(2) Terms on the maintenance of patent rights. In accordance with the provisions of the Patent Law, the patentee should pay annual fees within the statutory protection period to maintain its validity.In order to avoid contract disputes, the parties should stipulate in the contract terms about maintaining the validity of the patent right, and how to deal with the problems ifit is declared invalid orthe scope of protection is narrowed.
(3) Terms about handling with the issues of infringement. The liability for infringement must be clearly defined in the contract terms. Usually, when an infringement occurs, the licensor shall be responsible for all legal liabilities arising therefrom and bear all legal consequences, for example, the patent responsibility involved in technology input.
(4) Terms of contract validation. Generally speaking, the patent licensing contract can be effective after signing by both parties. "A patent licensing contract concluded between a patentee and another person shall be filed with the Patent Administration Department under the State Council within three months from the date of validationof the contract" as stipulated in the Detailed Rules for the Implementation of the Patent Law is not a necessary condition for the validationof the contract.With regard to the durationperiod of a contract, it may be agreed that the contract will automatically become invalid after the rights and obligations of both parties have been terminated, or a definite time limit can be agreed upon.
Nowadays, patent operation has become the focus of attention in the market. In the process of patent operation or technology transaction, patent contract is the basis to ensure operation safety.In a patent licensing contract, in view of the possibility that the patentee may transfer the patent right to a third party within the duration of the patent licensing contract, it shouldbe clearly stipulated that the compensation for losses caused bypatent transfer andterminationof the contract.Ultra vires act of licenseeshould also be prevented, such asthe implementing of patent goingbeyondthe permitted licensing period, geographical scope, operation mode and scope. In terms of the licensor,implementing the licensed patent by itself in an exclusive license contract and permitting others to implement in an exclusive or sole license contract should also be prevented.For method patents,consideringthe multi-participation of several parts or components,it is recommended for the licensor to sign license contracts with multiple component manufacturers.In addition,independent and dependent claims can be licensed separately.According to different licensing conditions, a non-exclusive licensing contract,solelicensing contract, exclusive licensing contract, cross licensing contract and divisible licensing contract can be adopted.In the meanwhile, the licensee also consider whether the implied license is included in the licensing contract. For example, authorizing manufacture and use does not mean authorizing the licenseeto sell, and authorizing use may imply the right of manufacture.
If the two parties signed a contract and performed their respective obligations, declaration of invalidity of the patent right has no retrospective effect on the part which have been performed, and the part not yet performed will generally not be performed anymore. The licensing agreement should also stipulate on the right of sub-licensing of the licensee.For example, it needs to be considered whether to restrict the sub-license so as to prevent the licensee benefiting from sub-licensing patents tothe third party.Some other issues that should be taken into account are those like how to deal with the rights of sub-agreements after the termination of the agreement?Can licensors share the benefits obtained by licensee from sub-licensing?Whether the exclusive licensee hasthe rights of sub-license?Nowadays, there are many intellectual property risks brought by suppliers.In IP management activities of enterprises, intellectual property guaranteeobligations of suppliers specified in sales contract carry great weight that necessary measures should be taken to protect the enterprise’s interest, such as classifying suppliers according to the risk level, establishing supplier compliance managementsystem, carrying outintellectual property investigation work setting risk transfer clauses in the security agreements.
In technology license agreement, it isneeded to notice thepotential risks likethelicensed technology cannot meet the standards or be implemented, the licensor conceals the technical details intentionally to hold its core advantages,refrain from giving enough technical guidance ordeliverying ofsufficient technical information. The breach of a patent contract includes the failure to fulfill the patent contract and the fact that the performance of the patent contract obligation does not meet the agreement. If the agreed liquidated damages are lower than the actual losses, the injured partycanrequest the people's court or arbitration institution to increase the damages appropriately orask the other party to continue to perform the contractandtake remedial measures, pay the liquidated damages and compensate for the losses.
In the patent transfer contract, the transferee should avoid re-transfer of the patent rights and consider the transitional period of the patent, for example, who will pay the renewal fee or annual fee of the patent application?If the patent right is declared invalid during the transitional period, the patentee shall be responsible for this.The parties should also consider transfer of the priority of patent application rights at the same time. When the patent right is claimed by the third party, the original patentee shall be responsible for responding to the lawsuit.If the transferred patent technology cannot be implemented or meet the standard, the return of the transfer fee and compensation for losses should be stipulated beforehand.
Since the patent rights include the rights of manufacture, use, sale, promised sale and import, the above rights cannot be divided and pledged to different creditors when a patent pledge contract is signed.After the patent is pledged,it should clearly stipulate that it is forbidden to license the use of the patentand the pledgor shall not transfer or license the use of the patent right by another person.In terms of invalidation of the patent, the pledgee has the right to ask to participate in the invalidation declaration as the third party.Within the duration of the patent pledge contract, the pledgee has the right to ask the pledgor to provide the guarantee.
Finally, abuse of patent contracts should also be prohibited. The abuse of patent contracts mainly includes restricting the licensee to obtain other technology similar to or competitive with the licensed patent technology from other sources;preventing the licensee from fully implementing the licensed patented technology unreasonably restricting the quantity, variety, price, distribution channels and export market of the products and services provided by the licensee;requiring the licensee to accept the unfair conditions attached to the patented technology, including the purchase of non-essential technology, raw materials, products, equipment, services and the acceptance of non-essential personnel;unreasonably restricting the channels or sources through which the licensee purchases raw materials, spare parts, products or equipment, etc.;prohibiting the licensee from challenging the validity of the licensed patentsor attaching conditions to the challenging action.Special attention should be paid to some private agreements or the fact standards which are not disclosed.The obligee shall not monopolize the patented technology beyond the scope of statutory rights by means of the terms of the contract, restrict the licensee to improve the patented technology and subsequent developmentfrom other channels, or force the licensee to purchase unnecessary technical equipment or products and take it as a condition for patent licensing.The obligee shall not restrict licensee to implement patent and restrict the scale of using technical secrets, the quantity and price of the products.The terms of the contract shall not be used to impose restrictive conditions requiring the licensee to continue to pay the patent fee after the expiration or invalidation of the patent right. When the patent is invalid or terminated, the patent license contract shall be revoked. The losses caused to the licensee should be compensated accordingly.
The ultimate purpose of patent contracts is to facilitate transactions. There are different strategies in different industries and enterprises. Patent contracts have gone through many processes or departments from signing to completelyfulfilling. It is necessary to have a clear understanding of the business from the perspective pf commercial and corporate culture.It is also neededto carefully manage patent contracts according to the enterprises’objectives, priorities and tolerablerisks, and this is helpful to accelerate the transactions, ensure security, enhance the ability of enterprises to resist risks in market competition, and become an important guarantee to encourage investment in innovation.