Licensing Landmines

Having just returned from a licensing tradeshow, you walk into your attorney's office armed with a competitor's board game. You are certain it infringes on your recently issued patent. A lawsuit is not on your mind, though— after all, you just spent three days talking and thinking about nothing but licensing. Instead, you ask your attorney to write a letter to your competitor inviting them to license the patent. You explain that the letter should not be threatening. It should simply point out the obvious—that they may need a license to continue selling their game, and you are more than willing to offer a license on reasonable terms. Worst case scenario: They tell you to take a hike. Right?

Not now. Several court decisions earlier this year gave potential patent licensees increased control over license negotiations and over going to court.

Previously, a patent owner could discuss licensing of its patent with a potential licensee with little worry of a retaliatory lawsuit. Offering a license was not seen as creating enough of a "controversy" to give the potential licensee the right to ask a court to determine whether a license was needed. So long as the patent holder did not make an explicit accusation of infringement, or threat of filing a patent infringement lawsuit, the patent holder generally remained in a safe zone, free from being sued itself. The line would be crossed, however, if, as discussions continued, the potential licensee grew to have a "reasonable apprehension" that, unless it accepted the license, it would be sued. At that point, the law gave the licensee the right to sue for a declaration that it did not infringe.

Earlier this year, the law moved in the licensee's favor. No longer is a "reasonable apprehension" required for a potential licensee to clear up uncertainty about whether it infringes by going to court. Instead, by simply offering a patent license based on specific products sold (or planned to be sold) by the licensee, the patent owner has handed over some control of the next step to the potential licensee. If it wishes, the potential licensee can, of course, accept the invitation and/or negotiate the license terms. Alternatively, if the licensee believes it is not infringing the patent, it can use the patent owner's license offer as an invitation to file a lawsuit.

The line between a license and a lawsuit just became blurrier. Make sure you know where the line is, and exactly when you want to cross it, when going after the bad guys.