Hi, I’m J.D. Houvener, your host of the Bold Today Show, where you, the inventor, entrepreneur, business owner, get your daily dose of inspiration to make the world a better place. Alright, well, part three of our five-part series on patent licensing, diving deep into this area of law because it’s important to keep that goal in mind and make sure you understand what the vision is for moving your product into the market.
So today, I want to actually ask you the big question, right? I need you to make your mind up, spend some time today thinking hard about whether you really want to build that business, collect members, form a business entity, hire employees, independent contractors, build a supply chain—all these things that take an incredible amount of time and resources in building a business. Or, are you going to think about being the technologist and just do innovation and let someone else do all the work of building that business and look to license?
So, there really are two separate paths. I want you to think really hard about this, and if you’ve got any difficulty based on what we’ve talked about, please follow up with us at our website boldip.com or just give us a call at 818-338-6377.
So, at the time of contracting, need to be very clear about what happens under the contract if they don’t pay, right? They don’t perform, they don’t pay the royalty, especially within the timeframe given. What is the remedy for breach? Breaching a contract, much like any other contract, is state-specific, and so your licensing attorney is going to want to make sure that they put in specific provisions that will bind the party that is signing the agreement.
Without digging into state contract law too much, I want to focus our attention on what to think about in terms of the patent and what that means. And as soon as there is a breach in a licensed contract, there’s big trouble because now that licensee who had the rights to make use and sell your invention no longer does, and the party is actually immediately liable for infringement. So, if they continue selling after the breach, they’re literally indirectly infringing. And so, immediately upon a breach, it’s beholden or it’s in the best interest of the licensee to write a cease and desist letter clarifying the fact that the licensee has rights in that invention and that no longer does the licensor have the permission to use that invention or revenue right. They have no longer the ability to make, use, sell, or import into the jurisdiction without your permission.
Now, one way to avoid this is to take a security interest in the actual product. So, if, for example, before jumping to this breach, if there was an intermediate step after the licensee stops payment or doesn’t pay on time, instead of that first step being a breach, there could be a security interest given to the licensee. This is sort of similar to that upfront payment as instead of having cash, you take stock—their ownership interest in the company. And so, what can happen over time if the licensee doesn’t pay the royalty is that the licensee actually begins to own the company or own the entirety of that sales stream. So, they own the potential for that down the road.
And what’s interesting is that this can come about at any point in the patent process, including in the application phase and, of course, in the issued phase. So, for all of you out there that are following along, I know I’ve hit on some details here. You can license your patent application while it’s still pending. Alright, so don’t miss that. It’s pretty exciting, right? So, just having it filed, it hasn’t even been approved yet. If there’s enough interest in the market for your product and there’s enough promise that it will actually get issued, you can market that. You can get a royalty payment, get real dollars for your invention even before it gets issued. Pretty exciting stuff.
So, if you have any questions about that, of course, anything at all about patent law, please get ahold of us.