Grant-Back Licenses
Grant-Back Licenses in Patent Transactions: What Inventors and Small Companies Need to Know
Summary
Patents as Capital: Small companies can leverage their patent portfolios to raise capital and extend their runway.
Common Concern: Many businesses worry selling patents means losing the ability to use their own technology.
Grant-Back License: A provision that lets the seller keep using the patented invention after a sale, ensuring continuity of operations.
Key Considerations: Make sure to consider terms like license scope and transferability to protect the future of your company
Introduction
For many innovators—especially smaller companies and independent inventors—patents are a source of both pride and potential revenue. A robust patent portfolio can help a young venture attract investors, secure partnerships, or even provide much-needed cash through sales or licensing deals. But if you decide to sell one (or more) of your patents, you might worry about losing the ability to continue using your own inventions.
This is where the concept of a grant-back license enters the picture. It’s a common provision in patent transactions that strikes a balance: you get to sell your patent for an immediate influx of capital while still retaining the right to use your invention. Below, we’ll walk through what a grant-back license is, what it does, and the important points to consider when negotiating one.
What Is a Grant-Back License?
A grant-back license is a clause in a patent sale agreement that allows the seller (the patent owner) to continue using the patented technology after it’s been sold to a buyer. Essentially, you transfer ownership of the patent to another party, but you retain a license—typically royalty-free—to use the invention in your own business operations. This can remove the fear that once you sell a patent, it could be enforced against you.
Key benefits of a grant-back license include:
Business Continuity: Ensures you can still develop, manufacture, or market products that rely on the patented technology.
Risk Mitigation: You avoid the danger of having the new patent owner sue you for infringement.
Flexibility: Often tailored to your needs in terms of scope, field of use, and duration.
Why Small Companies Should Consider Selling Patents (with a Grant-Back License)
Immediate Capital: Patent sales can inject much-needed capital into your business. This might be critical if you’re bootstrapped or need extra funding to reach your next milestone.
Focus on Core Competencies: If a certain patent isn’t aligned with your company’s long-term roadmap, selling it can help streamline your portfolio and refocus resources.
De-Risking Your Position: A grant-back license ensures you don’t lose the ability to practice the invention—an aspect that’s especially important if the patented technology is central to your product line.
Key Considerations When Negotiating a Grant-Back License
Breadth of the License
Current and Future Products: Ideally, you want to make sure the license covers existing and future iterations of your products or services.
Buyer’s Perspective: Buyers often try to limit the scope to your current product portfolio, preventing you from applying the invention to new products down the line.
Negotiation Tip: Emphasize the necessity for a broad license if your product roadmap includes improvements or new applications of the underlying technology.
Transferability
Future Acquirers: If your company might be acquired in the future, you need to ensure the license extends to at least one successor entity.
Corporate Restructuring: Even if you plan to rebrand or restructure, you’ll want the license to remain valid under any new corporate entity’s name.
Negotiation Tip: Request explicit language in the agreement that the license is “freely transferable” or “automatically transfers” to an acquirer.
Exclusivity vs. Non-Exclusivity
Exclusive Grant-Back: Rare, but in some cases, a seller might negotiate an exclusive license to continue using the patent in certain fields.
Non-Exclusive Grant-Back: Far more common, allowing the buyer to license the technology to other parties while you still use it for your business needs.
Negotiation Tip: Think carefully if exclusivity is essential for your business, as it may come with more stringent conditions or reduced sale price.
Royalty Structure
Royalty-Free: Often sellers negotiate a royalty-free license so they’re not paying additional fees to use their own invention.
Royalty-Bearing: Some deals may require ongoing royalty payments, which could reduce your net gain from the transaction but might be necessary to seal the deal based on some of the other terms.
Negotiation Tip: Factor ongoing royalties into your long-term financial projections to ensure they don’t negate the benefits of the initial patent sale.
Duration and Termination
License Term: Typically, the grant-back license lasts for the life of the patent. Confirm whether the license ends when the patent expires or if there are other triggers.
Termination Events: Make sure you understand any conditions that might terminate your license (e.g., breach of agreement).
Negotiation Tip: Seek clarity on what happens if the buyer sells the patent again—will your license be protected?
Conclusion
Grant-back licenses can offer small companies and independent inventors a valuable middle ground, allowing them to monetize their patents without sacrificing their ability to continue operating and innovating. By ensuring the scope of the license is broad enough to cover future products and by making it transferable, you can protect your business today—and in potential future scenarios like acquisitions or rebrandings.
Key Takeaway: When approaching a patent sale, do your homework on grant-back licenses. Negotiating the right to use your technology (current and future) and ensuring transferability can be critical lifelines for your business. With thorough preparation and careful drafting, you can unlock the capital your patent deserves while preserving the freedom to keep innovating.
If you found this post helpful, feel free to share it with fellow entrepreneurs and inventors. As always, seeking professional legal advice before finalizing any patent transaction is recommended to ensure your interests are fully protected.