Buying and Selling a Patent

In general, buying and selling a patent is much the same as buying and selling a tangible asset. The buyer should perform its own due diligence on the asset to make sure it is buying what it thinks it is buying, i.e. a valid patent. Then a Patent Transfer Agreement will be negotiated that includes the price and other terms on which the patent is to be purchased and sold. There are, however, certain non-standard issues that must be considered in the purchase and sale of a patent.

One initial difficulty is how to value the patent. While there may be a predictable stream of revenue associated with some protected inventions and processes, this is often not the case. Much may depend on the intangibles that the patented technology provides the buyer’s business; including the resources it has available to exploit the patent.

Another issue that must be considered and negotiated is whether related “know-how” will be transferred along with the patent. If the seller merely assigns ownership of the patent, it may not provide the buyer with the information necessary to maximize the value of the underlying invention. As a result, the buyer may request that the seller also assign or license all technical knowledge it has developed concerning the best way to utilize the patented invention.

Terms found in most Patent Transfer Agreements include:
  • Assignment of all right, title and interest in the patent and underlying inventions
  • Price and payment terms
  • Taxes—i.e. who pays for applicable transfer taxes (if any)
  • Representations and warranties
  • Indemnification
  • Know-how
  • Further assurances
  • Registration of assignment

The provision assigning all right, title and interest in the patent can often be lengthy, spelling out the buyers rights in detail. This includes the right to use and improve the patented invention in any manner, as well as register and enforce the patent anywhere in the world.

The representations and warranties to be made by the seller, as well as the related indemnification for breaches, are often heavily negotiated. Particularly, the seller will want the buyer to rely on its own due diligence in determining whether the patent is valid and enforceable. The buyer, however, will want assurances from the seller that the patent is valid, and indemnification (i.e. an automatic right to receive payment for damages or loss) if it is not. Less controversially, the buyer will want assurances that there are no third party interests in the patent and the seller is not aware of any infringement of the patent.

The “further assurances” provision says that the seller will assist the buyer with respect to future patent applications, enforcement actions and challenges to the parent’s validity. This is important for the buyer because having access to the underlying work product and the people who created the invention can be critical to the success of these proceedings.

Finally, while a patent assignment is not required to be registered with the Irish Patents Office or European Patents Office, it is in the buyer’s interest to do so in order to receive all of the rights of a patent owner, including the ability to enforce the patent in its own name.

Once the patent has been assigned to the buyer, the seller no longer has any right to the asset or any future revenue derived from the asset. As a result, it is much more common for a patent holder to license some or all of the patent rights in return for future royalties.

Comments are closed

Sorry, but you cannot leave a comment for this post.

Connect with Enodare

Enodare Newsletter

Related Legal Forms