Innovation does not always have to be commercialised directly by the inventor. Many businesses generate revenue from their inventions not by manufacturing products themselves, but by allowing others to use their patented technology. This process is known as patent licensing. Patent licensing plays a vital role in technology transfer, collaboration, and business expansion. It allows patent owners to monetise their intellectual property while enabling other companies to access valuable innovations without developing them independently. In India, patent rights are governed by the Patents Act, 1970 and administered by the Indian Patent Office. Understanding how patent licensing works is essential for startups, innovators, and established enterprises.
Patent licensing is a legal agreement in which the patent owner (licensor) grants permission to another party (licensee) to use, manufacture, sell, or distribute the patented invention under agreed terms and conditions.
The licensor retains ownership of the patent but allows limited rights to the licensee in exchange for compensation, usually in the form of royalties.
Why Patent Licensing Matters?
Patent licensing offers significant benefits to both parties.
For Patent Owners (Licensors)
Generate revenue without manufacturing
Expand into new markets
Reduce commercialisation risks
Increase return on R&D investment
For Licensees
Access proven technology
Avoid R&D costs
Enter markets faster
Gain a competitive advantage
Licensing can transform a patent from a static legal right into an active income-generating asset.
Types of Patent Licensing
Patent licenses can be structured in several ways depending on business strategy.
1. Exclusive License
An exclusive license grants rights to only one licensee. Even the patent owner may be restricted from using the invention within the licensed territory or field.
Key Features:
High value
Strong market control
Often higher royalty rates
Exclusive licenses are common when the licensee invests heavily in commercialisation.
2. Non-Exclusive License
A non-exclusive license allows multiple licensees to use the patented invention.
Benefits:
Broader market reach
Multiple revenue streams
Lower dependency on a single partner
This is common in technology or software sectors.
3. Sole License
A sole license allows only one licensee, but the patent owner retains the right to use the invention.
4. Compulsory License
Under certain conditions, the government may grant a compulsory license without the patent owner’s consent, particularly if:
The patented invention is not available to the public at reasonable prices
The patent is not being worked in India
Public interest demands access
Compulsory licensing is provided under the Patents Act, 1970 and is used sparingly.
How Patent Licensing Works: Step-by-Step
Step 1: Patent Ownership
The invention must be patented, or at least a patent application must be filed. Licensing a granted patent generally offers stronger bargaining power.
Step 2: Identify Potential Licensees
Potential licensees may include:
Manufacturers
Distributors
Technology companies
International partners
Market research helps identify companies that can effectively commercialise the invention.
Step 3: Valuation of the Patent
Before negotiating, the patent owner must assess its commercial value.
Valuation factors include:
Market demand
Competitive landscape
Remaining patent term
Scope of claims
Technological relevance
Professional valuation may be necessary for high-value patents.
Step 4: Negotiation of Terms
Key terms in a patent licensing agreement include:
1. Scope of Rights
Territory (India, global, regional)
Field of use (specific industry or application)
2. Royalty Structure
Fixed lump-sum payment
Running royalties (percentage of sales)
Minimum guaranteed royalties
3. Duration
For full patent term
For a limited period
4. Performance Obligations
Minimum sales requirements
Commercialization timelines
Step 5: Drafting the Licensing Agreement
A patent license agreement should clearly define:
Rights granted
Payment structure
Confidentiality clauses
Dispute resolution mechanisms
Termination conditions
Indemnification provisions
Precise drafting minimizes future disputes.
Step 6: Registration (If Required)
In India, certain licensing arrangements may need to be recorded with the Indian Patent Office to ensure enforceability against third parties.
Royalty Models in Patent Licensing
Royalty structures vary widely.
Lump-Sum Payment: A one-time payment for rights.
Running Royalty: A percentage of sales revenue.
Hybrid Model: Combination of upfront payment and ongoing royalties.
Milestone Payments: Payments tied to development or sales milestones.
The model depends on the industry and negotiation strength.
Patent licensing is a powerful tool that enables inventors and businesses to monetise innovation without directly manufacturing products. By granting controlled usage rights in exchange for royalties or other compensation, patent owners can generate revenue, expand markets, and share commercialisation risks.
Under the Patents Act, 1970, patent holders in India enjoy exclusive rights that can be strategically leveraged through licensing arrangements. When properly structured, patent licensing benefits both licensors and licensees, promoting technological advancement and business growth.
For startups, innovators, and established enterprises alike, understanding how patent licensing works is essential to unlocking the full commercial potential of intellectual property.
Disclaimer: Above mentioned insurers are arranged in alphabetical order. Policybazaar.com does not endorse, rate, or recommend any particular insurer or insurance product offered by an insurer.
I was looking for a Liability Insurance plan online. I wanted to get an idea of the premium amount that I hav to pay. I went on the Policybazaar website and entered a few details such as a number of employees, average age, etc. It showed me a quoate for the insurance plan. Thanks, PolicyBazaar.
Delhi
3.8 February 11, 2023
Amendra
Amazing Policy
I wanted to buy Liability Insurance, which requires less paperwork and could provide medical coverage to my employees in case of any misshpening at my workplace, so I chcked the policy bazaar website, where I learned about multiple benefits with affordable rates. I purchased the plan for my Company's Employees and found it helpful. Thanks, PB.
Delhi
3.8 January 29, 2023
Aneek
Incredible Benefits
Suitable policy and good coverage. Thank PB
Pune
4.3 January 16, 2023
Jyotsna
Easy Process
I am so much pleased with the Liability Insurance I purchased through PolicyBazaar website. The policy offers me peace of mind, knowing that any legal liabilities resulting from my business operations are covered. Their website is user-friendly and their customer service team was knowledgeable. Thanks
Coimbatore
4.3 January 03, 2023
Diljeet
Coverage For Multiple Perils
The plan i purchased at policybazaar provided me coverage for multiple perils. Thankyou.
Chennai
3.8 December 21, 2022
Om
Wide Range Of Coverage
I purchased liability insurance from policybazaar website and it provides me godd coverage at affordable rates. Thanks
Delhi
4.3 December 08, 2022
Deep
Multiple Coverage
I had been searching for an affordble Liability Insurance option for my small business and PolicyBazaar came to the rescue. Not only did they provide me with multple quotes from different insurance providers, but they also helped me compare the coverage and premiums. I found a policy that fit my budget without compromising on the coverage I needed. Thankyou.
Mumbai
3.8 November 25, 2022
Raghav
Highly Supportive
I recently purchsed Liability Insurance from PolicyBazaar website and I'm extremely satisfied with their service. The policy not only provides comprehnsive coverage for third-party damages but also offers excellent customer support. Thanks to PolicyBazaar.
Lucknow
4.3 November 12, 2022
Kush
Easy Customization
Their Easy customised process amazed me. Thanks to PolicyBazaar. It was a useful purchase.
Hyderabad
4.5 October 02, 2022
Mohit
Maximum Coverage
I was looking to buy error omission insurance and finally decided to go with the policybaazar. The premium was pocket friendly and still offered the maximum coverage. Their website is well managed and had all the information in detail.
Expert advice made easy
