Patent licensing involves granting exploitation rights over a patent to a licensee rather than exploiting the patent directly. This forms a legal contract that spells out the rights and obligations of both parties. Licenses can be revoked if obligations like sales targets are not met, while assigning a patent transfers ownership permanently. Licensors seek to profit from royalties paid by licensees over the patent term. Performance obligations in licenses help ensure steady progress in developing and marketing the patented invention.

2.  Patent licensing is considered one of the most viable means of
commercializing a patent. In short, a patent holder seeking to license
his patent will not exploit it himself. That is, he will not try to
create, market, and sell anything based on the patent. Instead, he will
market the patent itself to those who do wish to take those steps. Any
variation of this is known as “licensing a patent.” However, it is best to
know some facts about licensing patents before one rushes to do so, or
assumes that licensing is a “set it and forget it” means of cashing in on
their intellectual property.

3.  Legally speaking, you have licensed your patent when you (the licensor) grant exploitation
rights over your patent to a licensee (the person you are licensing it to.) “Exploitation
rights” simply means the right to create, market, and/or sell something based on what that
patent protects.
 A license of this nature is also a legal contract, and that contract is what will spell out in
concrete terms precisely which exploitation rights are being granted. These include any
performance obligations the licensor might demand of the licensee. This means that if any
performance obligations are included in the contract (ie, “You must produce X number of
sales by the year X.”), and they are not met, this could lead to the patent licensing being
terminated in its entirety. In this context, a license is also revocable – ie, cancellable – if
certain terms and conditions are not met. This is a common characteristic of legal contracts
in general, with special ramifications for patent licenses.

4.  The only way to grant someone irrevocable exploitation
rights, it should be added, is to assign them the patent.
Assignments, however, are permanent. They entail the sale
or outright transfer of the patent by the assignor to the
assignee. An in-depth exploration of patent assignments is
beyond the scope of this article, but just know that they are
an option if irrevocable exploitation rights are something
you seek.)

5.  Now that you know what patent licensing is and what it involves, we can
move on to a discussion of how to capitalize on them financially. The
primary means of doing this is to seek royalties from the licensee in
exchange for using your patent. Royalties, typically, are paid over the life
of the patent. The amount and frequency with which royalties are paid
from licensee to licensor must also be spelled out in the license
agreement. In this way, the licensor is protected. If the licensee fails to pay
the royalties that were agreed to, the licensor can revoke the patent
license and retain sole exploitation rights over it.

6. 1. The first kind is pre-market entry milestones. In short, these are
obligations that the licensee is expected to achieve or meet.
They could include things like bringing the invention under a
trial or validation process, creating a working
prototype, satisfying pertinent regulations, progressing through
any clinical trials that exist, and so forth. These performance
obligations ensure that things move along at a steady pace
without any income-killing lag in activity. It prevents the
licensee from become inactive as a rights holder.

7. 2. The second kind of performance obligations are post-
market entry sales targets. These take effect once the
invention is out of the development stage and available for
sale on the market. Very simply, such obligations include
sales targets, profit margins, or any other measurable goal
tied to the performance of the idea in the free marketplace.
These obligations give the licensee concrete goals that he
must attain and give the licensor a bare minimum of
royalties that he can expect to reap.