ANATOMY OF A PATENT
Raymond L. Owens
Eastman Kodak Company
January 24, 2005
Color Print Company Inc. manufactures and sells color ink jet printers. Black and White Print
Company Inc. manufactures and sells black and white ink jet printers. Color Print owns U.S.
Patent No. 8,000,000 that relates to an improved system for operating an ink jet printer. It
reduces manufacturing costs and improves quality. It works on both black and white as well as
color ink jet printers. Color Print has agreed to license this patent on a non-exclusive license to
Black and White Print. However, the license includes a field of use restriction limiting Black and
White Print’s license under the patent to black and white printers. No continuation or divisional
applications were filed based on U.S. Patent No. 8,000,000.
The Grant Back clause, Article 1B., from Black and White Print to Color Print was the subject of
extensive negotiations between the parties. Color Print reduced the running royalty percentage of
“net selling price” from 2½% to 2% to receive the benefit of this clause.
Initially, Color Print proposed a clause that required a legend in a clearly readable prominent
position that stated, “This product is made in accordance with a license under U.S. Patent No.
8,000,000 assigned to Color Print Company, Inc.” The parties agreed not to include the product
marking clause in the agreement.
The following is the license agreement (with comments) entered into between the parties.
This Agreement entered into as of the _____ day of ____________, 20___, by and between:
BLACK AND WHITE PRINT COMPANY, INC., a corporation organized and existing under the
laws of the State of New York, having a place of business at 40 Front Street, Syracuse, New
York, hereinafter referred to as BLACK AND WHITE PRINT, and
COLOR PRINT COMPANY, INC., a corporation organized and existing under the laws of the
State of New York, having a place of business at 755 Lake Avenue, Rochester, New York, 14612,
hereinafter referred to as COLOR PRINT.
The heading should properly identify each party, stating its address and status, e.g. a
corporation of a named state or foreign country, partnership, individual, an individual doing
business as (dba) the named enterprise, and an individual contracting both individually and on
behalf of a corporation. The names should be capitalized and each party identified by a single
significant term (rather than a general term such as “LICENSEE”) to be used throughout the
agreement in referring to the party, although LICENSEE may be used in printed forms where
identical licenses are to be granted to a number of licensees.
Since COLOR PRINT is the owner by assignment of all right, title, and interest in U.S. Patent
No. 8,000,000 relating to operating ink jet printers, and
Since BLACK AND WHITE PRINT has requested a nonexclusive license under U.S. Patent No.
8,000,000 and COLOR PRINT is willing to grant such license on the terms herein set forth,
NOW, THEREFORE, the parties hereto hereby agree as follows:
The above clauses (sometimes referred to as “recitals”) set forth the circumstances
and context of the agreement. They serve as an introduction and are often useful in explaining
the reason for any unusual provisions in the agreement. The Agreement should be worded so as
not to impose improper limitations on any clause in the agreement itself. The “agreement” of
the parties is subsequent to the “NOW, THEREFORE”, and the above clauses are not the proper
vehicle for significant obligations or consideration.
ARTICLE 1. GRANT
A. COLOR PRINT hereby grants to BLACK AND WHITE PRINT a non-exclusive
license (without sublicensing rights) under U.S. Patent No. 8,000,000 to make, use, offer to
sell, sell, or import Licensed Ink Jet Printers.
B. BLACK AND WHITE PRINT hereby grants to COLOR PRINT a fully paid-up,
irrevocable nonexclusive license (without sublicensing rights), to make, use, offer to sell, sell,
or import Ink Jet Printers under any patent or patent application filed in any country that
BLACK AND WHITE PRINT has a right to grant a license and has an effective filing date
before the expiration of U.S. Patent No. 8,000,000.
The “A” grant is restricted to a single field. The term Licensed Ink Jet Printers is
defined in Article 2B. as an inkjet printer that uses only a single color ink.
The “B” grant is the grant back clause negotiated between the parties. It should be
noted that the grant back of Article 1B. includes both black and white as well as color printers
in any country.
ARTICLE 2. DEFINITIONS
A. For the purpose of computing royalties under this agreement, the “Net Selling Price” of
Licensed Ink Jet Printers shall be the invoice price charged therefore by BLACK AND WHITE PRINT
in selling the same to the trade, excluding the following:
1. Direct taxes or direct governmental charges assessed on the manufacture or sale
or delivery of such Licensed Ink Jet Printers which are included in such invoice price as a separately
2. Common-carrier charges for transporting such Licensed Ink Jet Printers to the
customer, to the extent included in said invoice price, whether or not as a separately stated charge;
3. Credits or allowances (up to the net selling price of the Licensed Ink Jet Printers
involved) given by BLACK AND WHITE PRINT to its customers based on the return or rejection by
such customers of Licensed Ink Jet Printers on which royalties hereunder have been paid; and
4. Trade, quantity and cash discounts allowed, or commissions to agents
other than employees of BLACK AND WHITE PRINT and its subsidiaries, paid or payable by
BLACK AND WHITE PRINT to the extent included in such invoice price.
B. The term “Licensed Ink Jet Printers” means ink jet printers that use only a single
color ink to make images and need a license under U.S. Patent No. 8,000,000.
Many License Agreements include a more detailed “Definitions Article”. For
example, if subsidiaries are involved in the license, the term “subsidiary” should be defined.
Where there are multiple U.S. patents and applications, and corresponding foreign patents and
applications, they can be defined in a definition clause and listed in an appendix or exhibit
attached to the Agreement. In another clause, the licensed products can be defined as using
the patent rights defined in the previous clause. If the patents are licensed in a certain
technical field, that field will need to be defined with care. Territorial restrictions also need to
be carefully defined as well, with the caveat that certain territorial restrictions may have
ARTICLE 3. ROYALTIES
BLACK AND WHITE PRINT shall pay COLOR PRINT 2% of the net selling price of
Licensed Ink Jet Printers.
In the above clause, the royalty base is the “Licensed Ink Jet Printers” and a
running royalty is applied to the “net selling price” of the royalty base. If the Licensed Ink
Jet Printers are to be leased, the Grant and Royalties Articles will have to be changed. The
royalty can be based on a fixed amount for each item sold, e.g., “ten cents per optical disc
sold” or “fifty cents on a per pound basis” of licensed material. Where the licensed product
is to be integrated into a system that is sold as a single entity, the “net selling price” is often
defined as a percentage of the net system selling price of the integrated system. Many
license agreements make provisions for up-front payments that may or may not be
creditable against running royalties. Often Licensors require a minimum payment for each
reporting period. Sometimes agreements provide the granted non-exclusive license
becomes paid up after a maximum cumulative amount of royalty has been paid.
If the negotiated license was to be paid-up, then Article 5 would be deleted and
Article 3 would be changed to read, “BLACK AND WHITE PRINT, upon execution of this
agreement, will pay to COLOR PRINT, by a certified check or a bank check, in the amount
of One Million U.S. Dollars ($1,000,000).” Article 1A. would be changed to read,
“COLOR PRINT hereby grants to BLACK AND WHITE PRINT a non-exclusive paid-up
license (without sublicensing rights) under U.S. Patent No. 8,000,000 to make, have made,
use, and sell Licensed Ink Jet Printers.”
ARTICLE 4. AGREEMENT TRANSFERABILITY
A. Neither this Agreement nor any right, license or obligation hereunder is
assignable or transferable by BLACK AND WHITE PRINT or its subsidiaries,
through sale of BLACK AND WHITE PRINT’s assets, through bankruptcy
proceedings, or otherwise, without written authorization of COLOR PRINT.
B. This agreement and any right, license or transferable obligation
hereunder is assignable by COLOR PRINT, without authorization of BLACK AND
WHITE PRINT. Written notice of such transfer shall be promptly given to BLACK
AND WHITE PRINT.
Most license agreements should include some clear statement as to
transferability (separate from any specific exclusion of sub-licensing rights). Black
and White Print should have tried to change this clause to permit Black and White
Print to transfer this license to any company that bought their ink jet printing
ARTICLE 5. RECORDS, ACCOUNTS, STATEMENTS, AUDIT
A. During February and August following each calendar half-year during the term in which
this Agreement shall have been in force, BLACK AND WHITE PRINT shall furnish to COLOR
PRINT a written statement setting forth (1) the total number (quantity) of Licensed Ink Jet Printers
sold by BLACK AND WHITE PRINT during the preceding calendar half-year and, (2) the total
royalty payable thereon. In the written statements furnished hereunder, BLACK AND WHITE
PRINT shall also state separately the total number of licensed products made, but not sold, prior to
the end of the royalty period covered by that statement. At the time of furnishing each statement,
BLACK AND WHITE PRINT shall pay royalty to COLOR PRINT in accordance with such
B. For so long as this agreement is in force, BLACK AND WHITE PRINT shall maintain
full and accurate records and accounts of all data necessary for preparation of the statements and
for calculation of the royalties required by this agreement and shall retain the records and
agreements relating to each statement submitted hereunder, for three (3) full calendar years after
furnishing that statement to COLOR PRINT.
C. The records, accounts and statements referred to herein shall, upon request by
COLOR PRINT, be audited from time to time at the expense of COLOR PRINT by
certified public accountants agreeable to both parties, or if no such accountants are agreed
upon within 30 days of COLOR PRINT’s request, by WE CAN COUNT, INC. of
Rochester, New York, which accountants shall furnish to each party hereto a certificate
setting forth only their findings as to the completeness and accuracy, or the extent and
nature of any inaccuracy, of said records, accounts, and statements.
Normally if royalty payments are to be paid on final inventory, the definition of
Net Selling Price should require an accounting of Licensed Ink Jet Printers in final
inventory and the Royalties article should specify the royalty thereon.
ARTICLE 6. TERMINATION
A. Unless, and except to the extent, sooner terminated in accordance with Article 6B, or by
written agreement of the parties, the licenses granted herein shall continue in force until expiration
of the last licensed patent licensed under Article 1A or 1B.
B. In the event BLACK AND WHITE PRINT has not made royalty payments for three
consecutive calendar half-years, Article 5A., COLOR PRINT shall have the option to terminate this
agreement on notice to BLACK AND WHITE PRINT, except that the license granted under Article
1B. shall survive such termination. The termination of this agreement under Articles 1A or 1B
shall not relieve BLACK AND WHITE PRINT of its obligations to submit statements, permit
audits and pay any sums of money due and payable or accrued hereunder.
Generally a license expires with the last patent and the agreement effectively continues
until all royalty statements and accrued royalty payments have been made and the licensor has had
the agreed opportunity to audit the royalty records of the licensee.
ARTICLE 7. COMMUNICATIONS
Any notice, statement, other communication, or payment hereunder shall be in writing, and any
such communication and any payment hereunder shall be sent to the person who signed the
Agreement at the address stated at the beginning of this Agreement or as changed by written notice.
Any such notice, statement, other communication, or payment shall be effective as of the date
received, unless sent by registered or certified mail, in which case it shall be effective as of the date
mailed, as evidenced by a postal document received at the time of such registration or certification.
ARTICLE 8, SEVERABILITY
If any term of this Agreement is held invalid or unenforceable for any reason, the remainder of the
provisions will continue in effect as if this Agreement had been executed with the invalid portion
If a court of competent jurisdiction finds any provision of this Agreement unlawful or
unenforceable, that provision will be enforced to the maximum extent permissible so as to effect the
intent of the parties, and the remainder of this Agreement will continue in full force and effect.
ARTICLE 9. APPLICABLE LAW
This Agreement shall be construed and interpreted under and in accordance with the laws of the State
of New York, United States of America.
It is appropriate to establish the jurisdiction applicable law, as in the clause:
COMMENT: Dispute Provision
The present agreement does not have a Disputes clause. Under this Agreement the parties,
in event of a dispute, would have to sue in a court having competent jurisdiction, unless they can
mutually agree to use some method of alternative dispute resolution.
A Disputes clause may set forth a procedure to be used by the parties before litigation.
This clause may also specify that arbitration must be used instead of litigation in any court of law.
COMMENT: Warranty Provisions
There is no need for a Warranty provision in this agreement. However, if a warranty is
needed, it should be in the body of the agreement. For example, if there is some question about
ownership of a patent or sublicensing rights, then a warranty would be appropriate.
When a payment covers past infringement, a warranty clause should establish, as a
condition precedent, the exact extent of past infringement including dates, models, prices, and
quantities, or use.