Differences Between a License and a Patent

In the U.S., a patent for an invention can be granted only by the United States Patent and Trademark Office in Washington, D.C. Once granted, the patent gives an inventor the exclusive right to manufacture, use and sell his invention, as well as legally prevent others from doing so. The patent holder also has the right to license others to use his invention, typically for payment of a royalty fee. A patent license is a private agreement between the inventor and a licensee, and does not involve the USPTO.

The U.S. Constitution gives Congress the exclusive authority to enact laws regarding patents -- the first of which was enacted in 1790 and amended most recently in 1999. The patent laws specify the conditions and requirements for obtaining a patent, which can be categorized into three types: utility patent -- for a new and useful manufacturing process; design patent -- for a new ornamental design for a manufactured product; and plant patent -- for a new process for asexually reproducing a new variety of plant. All applications for patents must be submitted to, and approved by, the USPTO before a patent can be obtained.

A patent owner has the right to license the use of his patent to others. The license agreement is essentially a promise by the patent owner not to sue the licensee for using his patent; in return, the patent owner receives a royalty payment as agreed to between the parties. Neither federal law, nor the USPTO, specifies a particular form for a license agreement, and no filing is made to the USPTO with regard to a license. Patent licensing agreements are subject to the contract laws of the state where they are made.

Federal law provides exceptions to the general rule that a patent owner can prevent others from using his patent, which are known as "mandatory" patent licenses. In these cases, the law permits a contractor or subcontractor of the United States to use any patent without first obtaining permission from the patent owner if using the patent is necessary to fulfill the requirements of the government contract. The patent owner cannot prevent use of the patent in this situation, but can sue the United States for reasonable compensation for its use. Federal law also permits the district court to require a patent owner to license his patent to others if use of the patent is necessary to comply with federal environmental regulations.

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A patent license agreement can include any terms that the parties agree upon, subject to the rules specified under the applicable state laws for valid contracts. In general, a patent license is drafted as one of two types: exclusive or nonexclusive. An exclusive patent license gives the licensee the broadest possible rights to use the patent, and the licensee can legally prevent anyone else from using it. In this type of patent license, the patent owner merely retains title to the patent and gives all of the use rights to the licensee, including the right to create sub-licenses. In contrast, under a nonexclusive license, a patent owner agrees not to sue a particular licensee for use of the patent, but may also license the patent to other persons as he chooses.