PART LICENSING OF PATENT

ABSTRACT
Many emerging growth companies face patent licensing issues. In particular, new life
science companies usually require the "in-licensing" of intellectual property that will
establish the essence of their company. Patent licensing raises a host of critical legal and
business issues that the company will need to address appropriately in order to ensure it
has the right level of protections as it approaches the marketplace. Later on, in the later
90’s the company owing patent started part licensing of it, “one patent and one thousand
licensee…….” became the method of getting maximum profit because now the royalty
and other money is coming from a number of user. Thus, it gets multiplied. Can this be
allowed from licensee’s point of view who paid high money to obtain the monopoly from
patent owner but later on, he disturbed his monopoly by granting the same sort of license
to others also? The purpose of project is to study answer these jurisprudential question
and test the legality of part licensing in IP regime. This article highlights several key
issues particularly regarding part licensing from its validity to its economic efficiency.

CHAPTER 1
INTRODUCTION
In today’s commercial arena licensing policy holds it own importance as a tool of
business and marketing. License essentially means a permission to use another’s
property. Generally, a license is been given by licensee to another person to sell,
manufacture or make use of the commodity in any commercial manner, subject to the
terms and conditions of the contract. In IPR parlance, licensing is becoming an increasing
phenomenon whereby the patentee grants license of his patent rights to another person.
The general trend is that any patent or patent application and the rights derived there from
may be sold or assigned to another person temporarily, completely or in part (license), be
given as a gift or otherwise be made available to the public. A license can be of exclusive
type, non exclusive and limited type. A license shall be of an exclusive character if the
licensee receives exclusive rights to exploit the invention in accordance with the
provisions provided for in the license contract and the licensor maintains the rights to
exploit the invention within the limits of the rights which have not been transferred to the
licensee. A license shall be of a nonexclusive character, if the licensor, in transferring to
another person the right to exploit the invention, maintains the right to exploit this
invention, as well as the right to grant a license for the same invention to third parties. As
the project title shows the project work will be focused on part licensing, therefore, the
work will necessarily aims at deciphering the facets of part licensing of patents. Keeping
in mind that Limited licensing is the present trend in commercial market, this policy of
licensing should required its testing with respect to IP rights because this may be result
into violation of principle of jus cogens, on which author would be hampering all along
during the project work. Part licensing means permitting another person to use the
property partly and keeping the rest with himself. Though at this point of time, author is
unable to go into much deep of the subject but prima facie it seems to author that Part
licensing can be allowed wherein IP rights are severable but problem arises where the IP
rights can’t be segregated but even then in order to maximize the profit patentee grants
part license. It has been held by the courts that right of patent owner to license his or her
patent is not a creature of statute, but of the common law1.

1
L. L. Brown Paper Co. v. Hydroiloid Inc., 32 F. Supp. 857, 44 U.S.P.Q. 655.
 CHAPTER 2
INTERFACE OF JURISPRUDENCE OF INTELLECTUAL
PROPERTY RIGHTS AND PART LICENSING
Before dealing with the property in term of jurisprudence, it will better to have an
overlook of rights. In terms of Salmond, rights s an interest recognized and protected by a
rule of right2. Rights granted under IP regime are legal rights as differentiated from moral
rights3, wherein the difference between two is of sanction. Though rights have been
classified on different subject but for the sake of this chapter rights can be classified
under two hands:-
1. Proprietary rights.
2. Personal rights.
Proprietary right means a person’s right in relation to his own property whereas
personal rights are rights relating to status and that arising out of contract. The
aggregate of a person’s proprietary rights constitutes his property or estate. At this
stage only, it is necessary to discuss the concept of property. Jurisprudentially
property has been considered as a bundle of rights. Salmond divides property under
two hands:-
1. Corporeal Property i.e. right of ownership in material things.
2. Incorporeal Property i.e. right of ownership in any other proprietary right in rem.
This is further divided into two categories:-
2.1) jura in re aliena or encubrances, whether over material or immaterial things,
2.2) jura in re propria covers immaterial things. Patents are covered in this
category4.
For the sake of clarity the diagrammatic classification of property is represented as:-

2
Salmond, Salmond on Jurisprudence, (P. J. Fitzgerald : Universal Law Publishing Co. Pvt. Ltd.,2002)
3
Legal right is an interest recognized and protected by a rule of legal justice-an interest the violation of
which would be a legal wrong, done to him whose interest it is, and respect for which is a legal duty.
Moral right, on the other hand, means, interests recognized and protected by a rule of natural justice-an
interest the violation of which would be moral wrong, and respect for which is a moral duty.
4
Supra Note 2
 Property

Jura in re propria Jura in re aliena

Leases, Servitudes,
Material Things Immaterial Things
Securities etc.

Patents, Copyrights,
Land, Chattels etc.
Trade-marks etc.

Bentham, unlike Salmond, considers it as metaphorical and improper the

extension of the term property to include other rights than those which relate to material
things5. In contrast to property so defined, rights have also been classified as right in re
propria and right in re aliena. Right in re aliena is a right which limits the right of a
person due belonging of some more general rights in respect of the same subject matter,
that’s why they have been also called as encumbrances. This reflects the situation where
the right vested in one person becomes subject to or subordinate to an adverse right
vested in some another person. An owner of his chattels is jus in re propria i.e. having
right in his own property, the pledge of it will be jus in re aliena i.e. having right in
soneone’s else property. Applying this in licensing of patent, a patent owner have a right
in propria over the patent but as soon as the patent is licensed both licensee and licensor
has got a right in aliena over the patent because both of their rights are subject to the
limitation posed by one another. However, if a license is assigned the assignee gets a
right in propria, because assignment transfers the title of the patent itself to the assignee.
Leaving the concept of property and right here at this infant stage only, and
coming to the concept of part licensing. The word license has been derived from the latin
term “licentia” meaning freedom or liberty. License is a permission to use certain
property given by the owner of that property to other person. Section 105 of Transfer of
Property Act, 1882, and Section 52 of Indian Easements Act, 1882 covers the issue of
5
Supra Note 2
licensing. TPA deals with license of immovable property only. B M Lall v. Dunlop
Rubber Co.6 held that lease is a transfer of a right to enjoy the premises, whereas a
license is privilege to do something on premises which otherwise would be unlawful. On
the same lines, the court again in the case of Board of Revenue etc. v. A M Hussain
etc.7, held that license is a permission only to enjoy property. If a document gives a right
to use the property in a particular way or under certain terms while it remains in
possession and control of the owner, it will be a license.
Section 11 of the TP Act, states that if an absolute interest is created in
favor of any person, but the terms of transfer directs that such interest shall be applied on
enjoyed him in a particular manner he shall be entitled to receive and dispose such
interest in such a manner as if there was no direction. Considering this approach and part
licensing, since patent is an intangible rights then the transfer of patent has to be in its
entirety, in that case, even if certain conditions or limitation put by the owner will be void
as per the above mentioned section.

6
AIR 1968 SC 175
7
AIR 1976 SC 1813
 CHAPTER 3
ECONOMIC ANALYSIS OF PART LICENSING
Part licensing has become a tool for maximizing profit from the patented invention,
therefore, patentee licenses it to as many people as follows but at the same time, this
should also be economical. The economic efficiency should be kept in mind while
making license, otherwise the licensing scheme will not yield the optimum profit which it
ought to have. The two major considerations for part licensing are breadth and duration
of the license. Breadth refers to how similar another license can be granted without
infringing the patent for the original license. Duration refers to the number of years for
which license has been granted. Initiating the decision, one should consider the question
whether broad or narrow license should be granted? Here the broad and narrow refers to
the field of use.
A licensor who licenses his product risks more than royalty because the
information in the application is going to somewhere else. Therefore, an efficient breadth
should be considered for licensing the patent. This can be understood with the help of the
following example. Let, there is a patent over article “X” owned by “Y”. Y license it to
“A” allowing him to manufacture and at the same time, licensed X to “B” to use the
article. B contends that using the article also includes manufacturing it. Thus, under the
broad rule a single license encompasses both the area i.e. manufacturing and using. B will
get monopoly both as to manufacturing and using it. Contrast to it, under narrow rule,
both A and B will have their different areas of license. A will have control over
manufacturing and B will have control over use of the manufactured product.
To analyse the effect of broad and marrow license, consider a patent “X”
which still needs development to bring to market, the invention is much pioneering in
certain field. But the patent owner grants different licenses to different people
demarcating their respective areas. This puts a burden on the licensee to develop the
invention in order to make use of it. Development includes a small series of
improvements. Consider the example that an investment of Rs. 1,000 has been done for
inventing the patent. But at this time the patent doesn’t have any commercial value and
the patent owner grants the license to the licensee. The licensee subsequently has to
invest for its development. Subsequent investment of Rs. 500 will bring the commercial
applicability of the patent to the extent of Rs. 2000. Now, the question arises how to
divide Rs. 2000? In this case, if broad licenses are granted then the licensee may well
invest their part of money because that will yield the same to them but if small licenses
are granted, the licensee will be scared to invest because the return is not predictable. If
patent owner grants broad licenses, a license for the pioneering invention covers license
for improvements also but if the patent owner grants narrow licenses, separate license
will be required for both pioneering and improvement patent.
Thus, question arises what breadth of patent license is most efficient? If the
social value of investment that licensee has to invest, if exceeds the social value of
investment on developing applications, then patent license should be broadened.
Conversely, if the social value of investment on developing application exceeds the social
value of investment on fundamental research then patent license should be narrowed.
In reality, question of breadth of patent license is co-extensive with the ambit of
patent itself and should be determined in accordance to doctrine of equivalence.
According to this doctrine, the court have sometime reasoned that an improvement with
commercial value should not be interpreted as infringing on a pioneering invention with
little stand alone8. As already stated license breadth is co extensive with patent breadth,
so doctrine of equivalence will be applied in the same manner while construing the
breadth of license.
Commercial application and pioneering inventions are joint products of
fundamental research. Therefore, the license should be so given in such a manner as to
include both commercial application and fundamental invention within the ambit of
license to preserve and maximize the profit of licensee.
One has to consider the case where the patent owner kept one field of patent
for its own use and licenses the rest part to the other licensee. The other licensee further
develops it which brings its commercial application. Then the problem as to incentive
begins? This can be resolved in a case when transaction cost9 is zero but not when there is

8
Westinghouse v. Boyden Power Brake Co, 170 U.S. 537 (1898)
9
Transaction cost is the cost incurred during the process of bargain.
transaction cost is also involved. If transaction cost is zero than Coase theorem10 can be
applied and proper benefits can be given to both the licensee. At the same time, other
problem has also to be consider whereby the patent owner develops further the invention,
which is ancillary and essential to the original patent. The problem comes as how to
divide it between different licensees? If the transaction cost is zero, again Coase Theorem
can be applied but transaction cost can impede the whole process. In that case Normative
Hobbes Theorem11 will be applied, which states allocate the rights to the parties who
value them the most. Thus, this is how the breadth of the patent license is construed
keeping in mind the economic efficiency.
Next comes the question of optimal duration of patent license. While
analyzing this economic model, it should be kept in mind that the theory applies only for
non-exclusive license only, wherein the interest in patent has been divided among a
number of people. As the patent license gives the patent licensee to use it for the given
time period, but what should be the optimal time period of that license so that it strikes a
balance between the interest of licensor and licensee. No doubt, the interest of licensee is
to maximize his economic benefit but if the license is for a shorter term then the patent
life, the licensor has to also see that the patent don’t get disseminated. Same will be the
consideration of licensee also, but only till the duration of his license but licensor has to
think it after that also. As the duration of patent license if increased, society will enjoy
more benefits and at the same time if licensees are increased the society will enjoy more
benefits because there is a presumable competition will be there in between two. But the
rate of increasing benefit will go downward because the rate at which society will enjoy
benefit will gradually decrease with time. This in consequence decreases the marginal
benefit as the duration increase, because in the initial period the marginal benefit will be
at maximum. The other reason for this is that, as patent is nothing but a temporary

10
Coase Theorem asserts that breadth of patent license does not matter to economic efficiency so long as
licensees can bargain with each other costlessly and make efficient new contracts.
11
Normative Hobbes Theory states “Structure the law as to minimize the harm caused by failure in
private agreements.” According to this principle, the law should be designed to prevent coercive threats
and to eliminate the destructiveness of disagreement. The principle is normative because it offers
prescriptive guidance to lawmakers. For detailed study see, Robert Cooter and Thomas Ulen, Law and
Economics, 1st Edition, (2004 : Pearson Education, India)
monopoly, in strict economic terms; the society will start searching for the substitutes and
longer the duration more substitute the society will find. Thus, with the finding of
substitute the social cost of patent also decreases. This, in turn decrease the marginal cost
of the patent, which force the licensee to have a license for a shorter time period.

Duration increase Rate of benefits of society decrease

Marginal benefit decreases with duration

Society will search for substitutes and

Will find more substitute in longer duration

The rate of increase of social cost will decrease.

Marginal Cost decreases

Thus, this way the cycle goes on. The problem arises as to the
conclusion whereby it has been concluded that increasing duration will decrease the
marginal cost, thus not giving licensee maximum profit. But this happens after a certain
point of time, whereby till one time the marginal cost increase which will be the peak and
after that it starts decreasing. One has to identify that peak point. For this, let MSBp be
marginal social benefit that a licensee can get under patent license and MSCp be the
marginal social cost. It has already been discussed that with the increase in duration the
rate of increase of marginal social benefit decreases. Similarly, marginal social cost
increases but with a diminishing rate which reveals that extending the duration of patent
 increases the loss from monopoly pricing and less dissemination. The following diagram
will show this.

Money MSCp

MSBp

0 t’ (patent life in years)

t

The horizontal axis in the figure indicates the life of patent license in years. The
vertical axis indicates the cost and benefits of invention. The little bending in the two
curves has been given to show a little flexibility as to decline in the diminishing rate. The
intersection of two curves, point t, gives the point wherein the marginal social cost of
extending the license life for that period equals the marginal social benefit of having a
patent license life of that duration. Thus, duration t gives the maximum benefit under any
patent license to the licensee.
The point “t” will be different for different licenses and it will be affected by
some other ancillary factors also like market condition, nature of patent, royalty etc.
which should also be duly taken into account.
 CHAPTER 4
DIALECTICS OF PART LICENSING IN IP REGIME: A
DISCURSIVE APPROACH
Patent and patent applications are assignable by the owner. However, the right to
sell or lease a patent right is subject to the same restrictions as those which governs
transfer of other sort of property12. A contract to sell patent rights in violation of a statute
to prevent and punish fraud in the sale of such rights is void as between the parties.

Assignment v. License Every patent confers on the patentee the right to exclude others
from making, using or selling the invention throughout the patent territory and patentee
can assign, sell or license these rights to someone else. However, a patentee cannot assign
some of the claims to one and other claims to another person13, though the patentee may
grant separately the three rights namely, right to make, right to use and right to sell. But
instead of thus dividing the three rights constituting a patent, a patentee may grant an
exclusive license under the patent to the whole or specified part of the covered territory
under patents, and therein lies the distinction between assignment and license. In case of
assignment, an agreement must convey the exclusive right to make, use and vend the
entire invention14, whereas the grant of exclusive right to make and sell the patented
device is a mere license because it doesn’ grant the right to use the device 15. Even an
assignment of right to make and vend the invention in a certain territory, reserving to the
patentee a similar right on paying a similar consideration to the assignee, is a mere
license. But the grant of exclusive right t make, use and vend the invention, even in only
a specified territory, is an assignment because it excludes all other persons including the
patentee , from making, using or vending the invention in that territory16. It was held in
the case of L. L. Brown Paper Co. v. Hydroloid Inc.17, that an assignment transfers the

12
Commercial Union Tel. Co. v. New England Tel. & Tel. Co., 61 Vt 241, 17 A 1071
13
Pope Mfg. Co. v. Gormully & Jeffery Mfg. Co., 144 US 248, 36 L Ed 423.
14
Crew v. Flanang, 242 Minn 549, 65 MW2d 878, 102 U.S.P.Q. 324.
15
Waterman v. Mackenzie, 138 US 252, 34 L Ed 923.
16
Wilson v. Rousseau, 45 US 646, 11 L Ed 1141.
17
32 F. Supp. 857, 44 U.S.P.Q. 655
monopoly as well as the invention and connotes the right to do the thing from which the
patentee excludes others, while the license transfers only the invention and does not
affect the monopoly otherwise than by estopping the licensor from exercising his
prohibitory powers in the derogation of the privileges conferred by him upon the licensee.
In essence, license is a transfer of any right to make, use or vend an
invention less than that constituting an assignment. Whether the transfer of particular
right or interest under a patent is an assignment or a license does not depend upon the
name of the instrument but upon the legal effects of its provisions. An exclusive license
reserving nothing to the grantor except the right to receive compensation is legally
tantamount to the assignment18. The different types of license are:-

1. EXCLUSIVE LIECENSING The grant of exclusive license precludes the licensor

from competing with the licensee in respect to the subject matter of the license. A
licensor may covenant not to use or promote the licensed subject matter in violation
of the exclusive right granted to the licensee. But the covenant may not lawfully be
extended to cover products or processes outside the scope of the license. Therefore,
the grant of an exclusive license, may by implication precludes the licensor from
granting other licensee. The grant of exclusive licensee even bars the licensor to
practice the invention unless he has specifically reserved the right to do so. The
grantor may however, retain the right to practice he licensed subject matter. It
therefore follows that the exclusive licensee may not be he only party authorized to
practice the invention19.
Without the ability to exclude others from exercising patent rights, letters
patent would be valueless. The heart of the monopoly is excluding others from
capitalizing on the invention. With only a limited life--twenty years at best-- no one
wants to share the patent's short existence with others. So preserving exclusivity is
uppermost in an exclusive licensee's mind.

18
Supra Note 11.
19
This condition is wholly governed by the agreement inter se parties. Exclusive licensee, if the only party
practicing the invention is called “sole licensee”. A “sole license” is one which is exclusive to the
licensee, subject to the reservation of right to the grantor.
 The best way to keep the patent rights to itself is for the licensee to tie the licensor's
hands so the licensor cannot grant any patent rights to anyone else. Merely inserting the
word "exclusive" in the grant will do the job20:
LICENSOR hereby grants to LICENSEE an exclusive license to
make, use, and sell the Patent, subject to the terms and conditions of
this Agreement.
The other interesting point about exclusive license is that, an exclusive license which
includes the right to make, use or sell for the life of a patent is, for tax purposes, a sale,
as distinguished from the license. An exclusive license which otherwise qualifies as a
sale will probably be disqualified if it contains geographical or use limitations21. There
are special rules to consider the license which contains any geographical or field-of-use
restriction22. Courts have substantially pointed out difference between exclusive
licenses under a geographical or time limitation and an exclusive license under a field
of use limitation23.
A patent owner’s grant of exclusive manufacturing right to A and
exclusive marketing rights to B implies the patent owner’s agreement to refrain from
competing with A and B in the manufacture and sale of patented articles 24. A licensor
violates an exclusive license agreement by evading the licensee’s territory and making
sale therein without paying royalties to the licensee25.

20
Mark S. Holmes, Patent Licensing: Strategy, Negotiations, and Forms, (2004: Practicing Law Institute,
California)
21
Supra Note 17
22
Channel Master Cor. v. JFD Electronics Corp., 151 U.S.P.Q. 498, 260 F. Supp. 568. In this case the
antennas there licensed were designated for amateur and citizens band transmission. Radar and military
transmission use were excluded.
23
The reason for the distinction appears from the logic that the licensor in the case of geographical or time
limitation has granted an assignment of the whole patent and the interests of both the parties are identical,
even though there is a geographical or time limit restriction but so is not in the case of field-of-use
restriction.
24
Plastray Corp. v. Cole, 324 Mich 433, 37 NW2d 162, 8 ALR 1199.
25
Manning v. Galland-Henning Pneumatic Malting Drum Mfg. Co., 141 Wis 199, 124 NW 291.
 2. NON EXCLUSIVE LICENSE Legally speaking, nonexclusive licenses are
agreements by the licensor not to sue the licensee for infringement of the intellectual
property rights transferred. The rights conveyed are generally constructed as personal
to the licensee. Nonexclusive licenses have no statutory basis and constitute merely a
waiver of infringement under the licensed invention26. Herein, the licensee has no
property interest in the patent monopoly and no contract with the licensor that other
shall not practice the invention.

With regard to non exclusive the Canadian law is different

from US patent laws, in Canada, for example, a nonexclusive licensee can sue for
infringement27. The difficulty with this rule is that if there are several nonexclusive
licensees, the infringer may have to come to terms with each one of them in order to
effectively settle the litigation.

3. IMPLIED LICENSES Under implied license, the patent employing an invention

which infringes another’s earlier patent has been held estopped from suing the
licensee for infringement of the after-acquired, earlier patent by use of a device
identical in structure to the invention. This is because the licensor cannot negate the
license which he granted28.

4. LICENSE TO MAKE AND SELL A license to a person engaged in business to

make and sell the patented article in his business ordinarily does not restrict the
licensee to manufacturing the article with his own hands or selling it by his personal
efforts, but allows him to employ as many hands as many salespersons and agents as
the business necessities.

5. LICENSE TO USE A nontransferable license to practice the invention at the

licensee’s own establishment has been held not to entitle the licensee to practice the
invention at an establishment occupied by himself and others or to authorize others to
practice the invention with him or otherwise.

26
L.L. Brown Paper Co. v. Hydroloid Inc., 32 F. Supp. 857, 44 U.S.P.Q. 655.
27
Armstrong Cork Canada v. Domco Ind. Ltd., 66 C.P.R. 2d 46
28
AMP Inc v. United States, 182 Ct Cl 86, 389 F2d 448, 156 U.S.P.Q. 647.
 CHAPTER 5
DISCUSSING FEW MODES OF PART LICENSING
For maximizing profit, inventor license his products to as many people as possible
and for this purpose he has to divide his invention into certain parts. He tries to do it by
putting limitations on licenses, say for example, a patentee has got a patent over
semiconductor. He can license to sell it in Delhi to A and to rest of India to B. At the
same time, he can license it to manufacture to C and license to use it to D. Thus, he has
licensed his product partly to A, B, C and D. For this the licensor has to limit the field-of-
use of licensee. For Example,
The license granted herein to LICENSEE includes a license to convey to any customer of
LICENSEE, with respect to any product or service furnished by LICENSEE, rights to use
such product or service as furnished by LICENSEE provided, however, that no rights
may be conveyed to customers with respect to any invention which is directed to:
(i) a combination of such product or service (as furnished) with any other item
which is not a product or service furnished by LICENSEE, or
(ii) a method or process which is other than the inherent use of such product or
service itself (as furnished).

The simplest example of part licensing is that the licensor limits the scope of the license
granted in exclusive manner i.e. licensor deliberately excludes some rights from the
license. For Example,
OWNER hereby grants to LICENSEE a non-transferable, non-exclusive license
under the Patent Rights, without the right to sublicense, for the sole purpose of
manufacturing, using and/or selling Licensed Products under its own label in the
Territory for the life of this Agreement.

Additionally the licensor or the patent owner may put a sort of residuary clause in the agreement
barring the licensee to step shoes out of the boundary. For Example
No license under the Licensed Patents is granted, and no license shall be implied,
with respect to activities outside the Field of Use.
 A patentee may often license the manufacture, sale or use of the patented
invention only within a certain field, or for a fixed quality of manufacture or use, or
within a territory. The General Talkies Pictures Corp. v. Western Electric Co.29, upheld
a patent license limited as to field as reasonably within the reward the patent is intended
to secure. In US, as the patent regime is fully developed the authority under US law also
hold a sort of persuasive value under Indian Law. It was held in US that where the
licensor agreed not to manufacture or sell articles covered by patent rights exclusively
licensed to the licensee, the licensor was precluded from making or selling patented items
substantially similar to those licensed30. The court categorically held that a restrictive
license to manufacture a patented device is legal. The case is of much importance,
whereby the court tried to apply doctrine of equivalence in case of license.
Justice Gray in the case of Waterman v. Mackenzie31 opined that the monopoly
thus granted is one entire thing, and cannot be divided into parts, except as authorized by
those laws. The patentee or his assigns may, by instrument in writing, assign, grant and
convey, either, 1st, the whole patent, comprising the exclusive right to make, use and
vend the invention throughout the United States; or, 2d, an undivided part or share of that
exclusive right; or, 3d, the exclusive right under the patent within and throughout a
specified part of the United States, but later on this lead to differentiation between
assignment and license, whereby the part transfer is termed as license in which no legal
title is transferred. Often the Licensor wishes to restrict how a licensee may use the
patented rights. For instance, a licensee may wish to restrict a licensee to using the patent
under its own name or label. A simple provision such as the following would suffice:
LICENSOR hereby grants to LICENSEE a non-transferable, non-exclusive
license under the Patent Rights, without the right to sublicense, for the sole

29
305 US 124(1938). In this case the Western Electric licensed the manufacture and sale of patented
vacuum tube amplifiers, the license extending only to use in the noncommercial field. One of the licensee
made amplifiers for commercial use and sold them to the defendant, who bought with the knowledge that
they were made and sold in the violation of the license. Supreme Court found infringement in the
manufacture and use outside the field specified in the license.
30
Touchett v. E Z Paintr Corp., 150 F. Supp. 384, 113 U.S.P.Q. 16.
31
138 U. S. 252
 purpose of manufacturing, using and/or selling Licensed Products under its
own label in the Territory for the life of this Agreement.
The relationship between licensor and licensee is compared as that of with landlord and
tenant. There is, however, no implies warranty or covenant of quiet employment in the
sale or lease of patent rights. The owner of a single patent, mat at his will, restrict the
scope of license grant with respect to class of activity, duration, area, volume of
production, or size and capacity of the license subject matter. One owning a patent with
several claims cannot assign a single claim only, so as to convey the legal title, or enable
the assignee to sue thereon in his own name, and such an assignment will be construed as
a mere license32. The finding has been wrongly interpreted by a number of scholars
whereby they interpreted the judgment saying that part licensing has been disallowed by
the case but perhaps, the intention of court was different behind the virtual simple and
plain language. The Court wanted to say that licensing on the basis of claims can’t be
done which can be termed as “divided interest” whereas in part license undivided interest
has to be licensed to other person, which is within the permissible limits.
In Waterman v. Mackenzie,33 a ‘license agreement,’ was made between
Mr. and Mrs. Waterman on November 20, 1884, by which she granted to him ‘the sole
and exclusive right and license to manufacture and sell fountain pen-holders, containing
the said patented improvement throughout the United States,’ and he agreed to pay her
‘the sum of twenty-five cents as a license fee upon every fountain pen-holder so
manufactured by him.’ Later on, the licensee also started using the fountain pen holders
contending that it is within his license, but the court held that “A grant, by the owner of a
patent, of the sole and exclusive right and license to manufacture and sell the patented
article throughout the United States does not include the right to use such patented article,
at least if manufactured by third persons.” In Mitchell v. Hawley34, an instrument granting
‘the sole right and privilege of manufacturing and selling’ patented articles was executed
not expressly authorizing their use, because, though this might carry by implication the
right to use articles made under the patent by the licensee, it certainly would not authorize

32
Pope Mfg. Co. v. Gormully & Jeffery Mfg. Co., 144 US 248, 36 L Ed 423
33
138 US 252, 34 L Ed 923
34
16 Wall. 544
him to use such articles made by others. Thus, herein the basic limitation that can be put
by licensor in order to make the license part, are discussed herein:-

1. TERRITORIAL LIMITATION
35 U.S.C. 261 provides that “the applicant, patentee, or his assigns or legal
representative may…grant and convey an exclusive right…to the whole or any
specified part of USA.” Thus, a patentee may find support from this provision to put
territorial limitation on his license. Moreover, since rights under a US patents are only
coextensive with the geographical limits of the US, such rights may not justify an
agreement by a licensee not to sell the patented product outside of US. It has become
a customary rule that a territorial restriction cannot prevent one who purchases a
patented article within the territory from using the article outside the territory35.
Courts by a number of decisions held without any doubt that the territorial limitation
can be put in a license and that can’t make the license invalid36.
In Brownell v. Ketchman Wire & Mfg. Co37, license was
granted to manufacture, sell, loan, give in sub-license or dispose of otherwise in the
United States and its territories and possessions, the articles covered by said patents
and applications for patents, and all improvements thereon at the following conditions
…….; and it was further provided in the license agreement that licensee will not sell
or export the articles covered by the aforesaid patents and patent applications to any
foreign country. US federal court upheld the validity of territorial limitation put by
the license agreement by stating that it is a valid means of doing business in patents
and it doesn’t violate the federal patent Act.

35
The principle was first established in Adams v. Burks, 17 Wall. 453 (1873)
36
For cases relating to territory limited by country, See Brownell v. Ketchman Wire & Mfg. Co., 211 F.2d
121, 100 U.S.P.Q. 338; Becton, Dickinson & Co. v. Eisele & Co. 86 F.2d 267. For cases relating to
territory limited by state, See Keeler v. Standard Folding Bed C., 157 U.S. 659(1895); Industrial mach.
Tool Co. v. Miami Window Corp., 234 F.2d 301, 93 U.S.P.Q. 1. For case relating to territory limited by
city See Adams v. Burks, 84 U.S. 453(1873).
37
211 F.2d 121, 100 U.S.P.Q. 338
 2. SIZE, QUALITY, CAPACITY AND STYLE LIMITATION
The licensor may restrict or direct the licensee with respect to size, quality,
capacity or style limitation. The object of this may be anything i.e. may be licensor
want to reserve a share of market for him or to prorate production upon multiple
users. The quantitative provision in license agreement is stated in terms of the
maximum or minimum number of patent devices which can be produced under the
agreement. Under the maximum production limit, the protection from infringement
applies to that number only. License granting right to use patents to make devices of
specific size does not have negative covenant implied not to use patents to make
devices of other sizes.
The licensor at the same time, may restrict a licensee to manufacture of
patented items of “small size” only38. Similarly, the restriction about capacity may
also be put in the same fashion. In the case of Shaw v. E. I. du Pont de Nemours &
Co.39, the license granted by the licensee limited the licensee’s manufacture, use and
sale of the licensed filaments to ‘filaments having, in the drawn state, a maximum
cross sectional dimension of not more than 5 mils. The Court implied a negative
covenant from the language of the license “that the plaintiff patentee reserved. Or his
assignee, the property in the patent as to all filaments in excess of the dimension
specified.”
In another case of Lanova Corp. v. Atlas Imperial Diesel Engine Co40, plaintiff
entered into a license agreement with defendant. The latter corporation assigned its
rights under this contract to the defendant, a non-exclusive right to manufacture
engines and replacement parts therefore embodying the inventions of its patents, "said
license being limited to stationary, marine, industrial and automotive engines with a
piston displacement of more than 1000 cubic inches, aeroplane and passenger car
engines excepted." This license also extended to all patents to be issued on certain
pending applications Thus the license agreement provided for “style limitation”,
which was duly upheld by the court in a subsequent litigation.

38
Lanova Corp. v. Atlas Imperial Diesel Engine Co., 55 A.2d 272, 75 U.S.P.Q. 225.
39
152 U.S.P.Q. 364
40
55 A.2d 272, 75 U.S.P.Q. 225
 In the same manner, style or design limitation may be inserted into license
agreement.

3. FIELD OF USE LIMITATION

The owner of a patent may grant a license to licensee restricting the area of use
by putting certain conditions. The licensor may put restrictions with respect to style,
manner of vending, use etc. of the licensed article. A licensor may wish to limit the
licensee’s right to sell the licensed subject matter for use only in certain definite
fields. The limitations, therefore, becomes one on the class of customers to whom the
licensee may sell. Limited licenses to sell to customer, who will use the patented
subject matter only in certain fields, or for certain specific purposes, were held to be
valid41. On the other hand, where a grant as to use is broad, it will be given effect,
and will even include new uses which are foreseeable42.
The USSC there upheld the validity of field-splitting licensing program. Under that
program, Western Electric, the plaintiff was granted an exclusive license to make and
sell sound amplifiers in the commercial field (including theaters and the like), and
non-exclusive licenses were granted to others to make and sell in the private field.
Despite uneasiness about the future of limiting the licensee’s practice to a given field,
General Talking Picture has really been followed43.
In this regard, the case of Benger Labs v. R. K. laros Co.44, wherein the licensor
granted two licenses for a single patented drug. The first license was with regard to
the use of dug in veterinary field and other license was for use of drug in human field.
The court held the license valid.

41
Armstrong v. Motorola Inco., 374 F. 2d. 764, 152 U.S.P.Q. 535
42
Boosey & Hawkes v. Walt Disney Co., 145 F.3d 48, 46 U.S.P.Q.2d 1577. The case was related with the
grant of license with regard to copyright. The grant was to record “in any manner”, a later video format
was therefore included.
43
Automatic Radio Mfg. Co. v. Hazeltine Research Inco., 339 U.S. 827. Also see the case of SCM Corp. v.
Radio Corp. of Am., 318 F. Supp. 433, 167 U.S.P.Q. 196, wherein separate licenses were granted over
process and product claims and was held valid.
44
209 F. Supp. 639, 135 U.S.P.Q. 11
 4. GRANT BACK
Grant back provides for license or agreement to the licensor of any
improvement patented by the licensee on the products or processes of the licensed
patent. Thus, this gives some additional right to the licensor and expands the licensors
monopoly over the patent. Though grant back has several times raised the problem
with respect to provision of Antitrust Act45 but the courts has tried to harmonize the
two.
Except under the circumstances described in the last sentence of this Section,
solely for the purpose of enabling Licensor and its licensees to continue the
development and commercialization of Licensed Products to which Licensee no
longer has rights, Licensee shall grant to Licensor a fully paid-up, irrevocable, non-
exclusive, worldwide license, with the right to grant sublicenses under the "Licensee
Patents", if any, to make, have made, use, sell, and import any Licensed Product and
for no other purpose. For purposes of the foregoing, "Licensee Patent" means any
Patent Right existing at the time of termination of this Agreement which would block
Licensor from practicing any Patent Right included in the Licensed Patents. Licensor
shall not be entitled to any grant-back rights under this Section if this Agreement is
terminated by Licensee under Section [Breach or Default Provisions] or [Bankruptcy
Provision] or if Licensee's obligation to pay royalties has expired pursuant to Section.

5. RESALE RESTRICTIONS
Resale restrictions have also remained questionable and were also
upheld by the courts. It has been held valid by the courts that one may license a party
to manufacture a product and restrict the licensee to only those who are licensed to
use the product. In Brownell v. Ketchman Wire & Mfg. Co46, license was granted to
manufacture, sell, loan, give in sub-license or dispose of otherwise in the United
States and its territories and possessions, the articles covered by said patents and
applications for patents, and all improvements thereon at the following conditions
…….; and it was further provided in the license agreement that licensee will not sell

45
Transparent Wrap Mach Corp. v. Stokes & Smith Co., 329 U.S. 637, 72 U.S.P.Q. 148 (1947).
46
211 F.2d 121, 100 U.S.P.Q. 338
 or export the articles covered by the aforesaid patents and patent applications to any
foreign country. US federal court upheld the validity of resale limitation put by the
license agreement by stating that it is a valid means of doing business in patents and it
doesn’t violate the federal patent Act
Clause providing that the license shall remain in effect so long as
any of said patents are extant but that the licensee shall not grant any sub-license, or
assign the contract without the plaintiff's consent, is not a complete bar on resale but
is regulatory in nature47.

47
Supra Note 40
 CHAPTER 6
PART LICENSING IN INDIA – A CASE STUDY
Being a developing nation and having an infant agrarian economy, the patent regime in
India is not at its stake as compared to other nations. Indian Patent Act, 1970 gives
directions for licensing from which the writer has drawn his analogy. Section 6848 of The
Patents Act, 1970 gives mandatory conditions for a valid transfer/assignment/license i.e.
1. the agreement should be in writing and
2. the agreement between the parties concerned should be reduced to the form of
a document.
Deep understanding of the Section reveals the fact that after United States, India is the
second country specifically providing for part licensing in the Act itself. The opening
words of the Section 68 of the Act states that “an assignment of a patent or of a share in
a patent…” thereby expressly stating that a share i.e. a part of a patent can also be
separately licensed. Indian market is not fit for certain statutory class of patents because
of available substitutes in that particular field and the practicing piracy in that area
irrespective of the measures adopted by the government. In that case, it is very hard for
the patentee to make economic benefit, therefore licensing is the option left to him.
Part licensing is a process which is based on a particular market economy. This
part of the paper aims at analyzing the Indian patent market conditions vis-à-vis part
licensing. The Indian patent market takes into account several factors, which are shown
in the figure in order to analyze the economic incentives of the patent.

48
Section 68 An assignment of a patent or of a share in a patent, a mortgage, licence or the creation of
any other interest in a patent shall not be valid unless the same were in writing and the agreement
between the parties concerned is reduced to the form of a document embodying all the terms and
conditions governing their rights and obligations and duly executed.
 Field of technology Risks – time to market
Life science vs. Physics & Engineering

Inventor’s future plans – Projected revenue stream

Chances for developing
Invention

Character and type of inventor Development costs

Scope of patent protection

Taking these factors into account, following conclusion can be drawn:-

1. By part licensing, the patentee can reduce the development cost for further
developing the invention.
2. The projected revenue stream, in which if the patentee himself practice or
assigns49 the patent to someone, the revenue flow will be from only on use,
whereby part licensing can multiply the flow of revenue to patentee.
3. If the patent is of such a nature that it is difficult to make it to the reach of
common use, in that case part licensing can be of immense help.
Thus, it shows that Indian patent market economy as well as concerned statute
immensely supports part licensing.

Part Licensing of Patents by Academic Institutions

In India, mostly part licensing is practiced the universities and other academic
institutions owing patent which prominently includes IITs, Indian Institute of Science,
Bangalore and few medical institutes because there purpose is bit different from just
creating monopoly and rule over the market. They need immediate finance back from the
patent which they incurred on the patent for its development and for carrying on further
R&D. These institutes license the patent in part or in entirety (generally they part license)
at their own discretion for commercialization through third parties who may or may not
49
The difference between assignment and license is of technical importance, it should be kept in mind.
be the creator through the grant of licenses, or assign its ownership rights to third
parties/creator safeguarding the interests, financial or otherwise, of the Institute. At the
same time these institutes may under special circumstances retain a non-exclusive
royalty-free license to use the property for teaching and research. Indian Institute of
Science, at present owes 119 live patents and under there licensing policy they have part
licensed most of there patent justifying it as a method of converting science into a method
of business. Part licensing insures quick flow of finance to the patentee which is the main
thrust of these institutions because of financial paucity. Apart from this the other factors
favoring these institutions for part licensing their inventions instead of assigning are:-
1. An assignment may be appropriate however where the patent owner prefers to
receive a lump sum price, at the time of the assignment, rather than collecting
royalties.
2. The lump sum payment relates to a lesser period, then assignment would be
inappropriate, and instead there should be a license for the period that relates to
the actual lump sum payment.
3. Royalties may be received over a period up to 20 years for example, in the case of
a patent.
4. The disadvantage to a patent owner is that the lump sum amount at the time of the
assignment will be assessed on the value of the patent at that time.
5. Another disadvantage is that the patent owners, by assigning, ceases to have the
prospect of blue sky financial return should the patent have otherwise generated
greater royalties than the lump sum amount has been assessed on.
Not in India only, but this trend of part licensing by academic institution is
going successful worldwide. Example:-
– The average licensing revenue of the top 10 US Universities is USD71
million.
– Stanford University made USD87 million through the licensing fees of just
one basic biotech patent.
Part Licensing by Pharmaceutical Industries
Pharmaceutical sector is another sector where part licensing is done in order to have two
fold advantages apart from financial maximization:-
• To make the invented drug/chemical available to the public quickly because in
case of patent of life saving drug or any other product of general public use it is
moral duty on the patentee that instead of concentrating on monopoly, he should
make them available in the market;
• In pharmaceuticals strict division of patent is sometimes not possible because the
patent in the entirely is semi-separable in nature, in that case part licensing creates
competition among the licensee themselves which ensures low price and better
service.
As an example to this, recently in 2002, Ranbaxy Laboratories Limited, India’s
largest pharmaceutical company entered into a contract of part licensing with Synaptic
Pharmaceutical Corporation (Nasdaq: SNAP), USA, a leading developer of next-
generation GPCR-based pharmaceuticals whereby the Synaptic Pharmaceutical
Corporation granted part license of manufacturing a particular drug to Ranbaxy. In return
to this, Ranbaxy gave Synaptic an up-front licensing fee, milestone payments and
royalties. Ranbaxy has a strong drug discovery program in urology with special emphasis
on BPH and urinary incontinence. The agreement with Synaptic will allow Ranbaxy to
generate intellectual wealth in the area of urology using Synaptic’s patented technology.
This helped Ranbaxy as they can further create intellectual wealth using the licensed
invention, Synaptic by getting high up front money and to the public who can be
benefited by further invention.
 CHAPTER 7
CONCLUSION

When a holder of IP right wishes to permit another person does something that is within
his or her control as the IP owner, a licence may be agreed. A licence is effectively a
contractual agreement and should set out precisely what the licensee is permitted to do
and any terms and conditions applying to this use, including the amount of any payment
or royalty to be paid to the licensor (the IP owner). Licences can be limited in time, say to
last for only two years, limited by territory, say to allow exploitation of the IP in only one
country, or limited by which exclusive rights under the IP right are licensed. Also, in
some circumstances, licenses might be purely verbal agreements or even be only implicit
in some wider agreement. Again it is up to the parties involved to negotiate what is
appropriate, but a clear written agreement about the licensing of IP is also a good idea if
disputes about what was licensed are to be avoided in the future. So, it is the doing of
things restricted by the exclusive rights that can be licensed, but it is important to
remember, that there may be other IP rights owned by someone else that will also need to
be licensed before a product can me made or an activity undertaken.
Intellectual property can be exploited in several ways. For example, one can
either assign (sale of IP) or licence the intellectual property right to a third party and in
licensing also the most economic efficient method is part licensing. It is now well settled
that part licensing of patent i.e. licensing a patent in parts is permissible within IP regime.
In this case, the licensor and licensee both should be very clear about their field of use
and other restriction because now a days part licensing has become a matter of patent
litigation. Licensee in order to have financial benefit encroaches upon the non-licensed
domain and infringement of patent takes place because for that part he was not been
permitted to use. The advantages of part licensing is that one retain ownership and
control over the use of the intellectual property right and one can maximize his
commercial returns by obtaining a continuous royalty stream from a number of licensed
users.