Patent Attorney and Founder
What are the key parts of a patent licensing agreement? Let’s break it down.
Hey everyone, I’m JD Houvener, founder and patent attorney at Bold Patents Law Firm. I also wrote Bold Ideas: The Inventor’s Guide to Patents. If you’re looking for a solid starting point, check out our Bold Inventor Kit below—it’s packed with resources on patents, from drafting to searching to monetization.
Now, let’s get into today’s topic: What goes into a patent licensing agreement? If you’re an inventor or business owner, this document is crucial. It lays out the rules for how someone else can use your patented invention—and how you get paid. A strong agreement protects your rights and ensures you’re making the best deal possible.
Here are the 10 key sections you need to know:
1. Grant of Rights
This is the heart of the agreement. It defines what rights the patent owner is giving up—whether it’s for a single patent or an entire portfolio.
- Are you allowing exclusive rights (just one company can use it) or non-exclusive (multiple companies can license it)?
- Can they make, use, or sell the invention—or just one of those?
- Are there limits on geography, industry, or market?
Your attorney helps ensure you’re not giving away too much—or too little.
2. Term and Termination
How long does the agreement last?
- It could run for the life of the patent (up to 20 years) or just a few years as a test period.
- There should also be exit terms—what happens if things don’t go as planned? A flexible agreement allows renegotiation if the product takes off.
3. Payment Structure
How do you get paid?
- Royalties – A percentage of sales.
- Lump sums – One-time payments.
- Milestone payments – Money based on hitting certain goals.
The agreement should clearly define how payments are tracked, reported, and enforced.
4. Scope of Rights & Limitations
Can the licensee outsource production? Modify the invention? Create spin-off products?
This section controls:
- Sub-licensing (can they let others use it?)
- Derivative works (can they tweak your invention and sell it as their own?)
If not handled carefully, a licensee could end up competing with you using your own technology.
5. Confidentiality & Trade Secrets
If the licensee learns new details about your invention, how do you keep that information safe?
- Prevent leaks of future versions (V2, V3, etc.).
- Define who can access sensitive information and how it’s stored.
A strong NDA (non-disclosure agreement) is often part of this.
6. Quality Control
You don’t want your invention tied to a poorly made product.
This section sets standards for manufacturing, testing, and compliance with industry regulations. Some agreements require pre-approval before anything hits the market.
7. Infringement & Indemnification
What happens if someone else copies your invention?
- If you give exclusive rights, the licensee might be responsible for fighting infringers.
- An indemnification clause protects you from legal trouble caused by the licensee’s mistakes.
8. Dispute Resolution
If things go south, how do you settle disputes?
- Mediation or arbitration can help avoid costly lawsuits.
- The contract should state where legal matters will be handled.
9. Governing Law & Jurisdiction
This determines which state’s or country’s laws apply. Important if working internationally.
10. Future Innovations & Improvements
Technology evolves. Who owns improvements and updates?
- If the licensee tweaks your invention, do you get a share of the profits?
- Should new versions trigger a fresh licensing agreement?
A well-crafted agreement considers not just today’s invention but also tomorrow’s potential upgrades.
Wrapping Up
A patent licensing agreement is more than just paperwork—it’s a business strategy. The right terms can make or break your success. If you have questions, drop them in the comments below, and don’t forget to grab our Bold Inventor Kit to get started on your patent journey.
Looking forward to helping you! I’m JD Houvener, owner and founder of Bold Patents Law Firm. Have a great day—and remember, go big, go bold!