Role of Co-Owners under Indian Patents Act

19 Aug 2014

In the patent licensing arena, widespread presumption is  that the Indian Patents Act 1970, treats ‘patent, published, but yet to be granted” as though the patent  is granted. With regard to commercialization of IPR,  patent licensing plays a pivotal role as a tool of business  and marketing. ‘Licensing’ is phenomenon whereby the patentee grants a license of his patent rights to another person subject to the terms and conditions of the  contract. ‘Co-ownership’ is a term which specifies that a patent, like any other property may be owned by one person or more than one person and each of the owners shall be entitled to an equal undivided share in the patent unless there is an agreement to contrary.

Patent Licensing – An overview

A patent grants the patent holder the right to stop others from making, using, selling or offering for sale the patent owner’s invention without his consent. Therefore, a patent owner can license his/her inventions to others on mutually agreed terms and conditions of the contract. A patentee can transfer a right by a license to any person seeking the rights to work the invention at any time before the expiry of the patent. License is granted in the form of an agreement which contains all the terms and conditions of licensing between the licensor and licensee. A license to use the patent may be granted after filing of provisional specification.

Provisions relating to Patent Licensing in Indian Patents Act 19701
The following provisions are mentioned in Indian Patents Act, 1970 with regards to patent licensing;

  • An owner of a patent can grant license however, a co-owner cannot grant a license without the consent of the other owner/owners.
  • The agreement between the parties should be documented.
  • Unless made in a writing form, a license or any other interest in a patent is not valid. Section 68 An assignment of a patent or of a share in a patent, a mortgage, licence or the creation of anyother interest in a patent shall not be valid unless the same were in writing and the agreement between the parties concerned is reduced to the form of a document embodying all the terms and conditions governing their rights and obligations and duly executed
  • The agreement should be prepared on a stamp paper according to the Indian Law on Stamp duties.
  • The terms and conditions of the agreement should be clear, concise and explicit.
  • Following the signing of the license agreement, the party acquiring the license (licensee) has to write to the Controller to register the title or interest in the patent within six months from the date of agreement.
  • The registration has to be done in accordance with Sections 69(1) and 69(2) and rules 90(1) and 90(2).The document registered will be effective from the date of its execution and not from the date of registration.
  • An application by the licensor for registration of transfer of interest is also to be filed before the Controller of Patents.
  • The terms of license shall be kept confidential by the controller, if requested by the patentee or licensee.

Delhi High Court’s Decision on National Research Development Corporation V/S ABS Plastics Limited
In the above case the Hon’ble Delhi High court has held that where a right in a patent is assigned or a license is accorded in favour of someone, the same is not valid unless the same is in writing between the concerning parties and it has been documented and filed in a prescribed manner with the Controller of Patents. The Court further held that a license agreement is valid only during the term of the patent. “In the case of National Research Development Corp (NRDC) v. ABS Plastics, NRDC was the assignee of two patents relating to a process for the manufacture of Terpolymers of Acrylonitrile Butadine (ABS Resigns) using emulsion technology. NRDC licensed the patents to ABS Plastics on 23 July, 1975 for a period of eight years. Under the license, ABS paid a lump sum royalty and agreed to pay a running royalty as well. As ABS failed to pay the royalty due under the license agreement, NRDC filed a suit to claim the pending royalty with interest. After reviewing the case and hearing the arguments of both the parties, the court held that the license was invalid and therefore unenforceable because it was not registered at the patent office. Further the court cited that under section 69 of the Patent Act a license agreement must be registered at the patent office for it to be valid.”

Prohibition of unlawful insertions in an Agreement
Section 140 of the Indian Patents Act ensures that certain restrictive conditions are not included into a contract for licensing of a patent. Such unlawful insertions lead to anti-trust litigations in future. Unlawful insertions in any contract for sale or lease of a patented article or an article made by a patented process or in license to manufacture or use a patented article or to work any process protected by a patent include the following restrictive conditions;
a) require the purchaser or licensee to acquire from the vendor or licensor or his nominees, or to prohibit from acquiring or to restrict in any manner or to any extent his right to acquire from any person or to prohibit him from acquiring except from the vendor or licensor or his nominees any article other than the patented article or an article other than that made by the patented process or
b) prohibit the purchaser or licensee from using or to restrict in any manner or to any extent the right of the purchaser, lessee or licensee, to use an article other than the patented article or an article other than that made by the patented process, which is not supplied by the vendor or licensor or his nominee or
c) prohibit the purchaser, lessee or licensee from using or to restrict in any manner or to any extent the right of the purchaser, lessee or licensee to use any process other than the patented process,
d) Provide exclusive grant back, prevention to challenges to validity of Patent & Coercive package licensing.

Licensing by co-owners
The role of co-owners in a patent application differs from country to country in accordance with the law practiced in every country. Section 50 of the Indian Patents Act 1970 lays down the provisions for the rights of co-owners of a patent. For example, if there are four inventors from party A and one inventor from group B, A and B will each own 50% of the patent rather than having a split of 4:1. Section 50(1) of the Patents Act, 1970 provides that each of the co-owner in the absence of an agreement to the contrary, has an equal undivided share in the patent. This means that each of those co-owners shall have the right to prevent third parties from making, using, selling, offering for sale or importing the patented product in India or the product made by the patented process.
Section 50(2) provides that a co-owner cannot grant a license or assign his rights in a patent to a third party unless the co-owners give consent for the  same.Section 51 of the Patents Act 1970 mandates that when a co-owner of a patent desires to sell his interests in the patent or grant a licence to any person, he may make an application to the Controller who may after giving an opportunity of being heard to all the other persons registered as grantees or proprietors of the patent, issue appropriate directions consistent with the terms and clauses of the agreement between the co-owners for the sale, lease or grant of licence.

Powers of the Controller in Giving Directions to the Co-owners
In case if any controversy arises with regards to sale or lease of the patent and the co-owners do not mutually agree, then the person who wishes to grant the licenses under the patent may make an application to the Controller in Form 11 along with a fee of Rs.6000 to give directions. Section 51(3) of the Act states that an opportunity to be heard is provided the person registered as grantee or proprietor of the patent or the person in default.

In case of lack of Agreement between the Co-owners
In case of situations where there is a lack of any agreement to the contrary and one co-owner does not give consent to the other co-owner for licensing there applies the provisions mentioned in Section 69(3) of the Indian Patents Act which provides that the  Controller would refuse to any further actions until the rights of the conflicting parties have been resolved in a competent court.
As far as commercialization of patents is concerned, a clear agreement between the co-owners is required as a first step even if any one of the co-owner is looking to license the patent. The agreement between co-owners should necessarily give equal right to both the co-owners to exploit the patent in hand. On the other hand, an agreement could divide the territories or even limit the amount of commercialization by the other co-owner.

In licensing a patent, an agreement is prepared between the purchaser/ licensee and vendor/licensor. However a co-owner of a patent cannot grant license without the consent of the other owner in which case the co-owners require entering into an agreement in force for commercialization. The goal in both cases is to achieve a good agreement which clearly reflects the intention of the parties and chalk out the specifications  and details that they have agreed to. Apart from consistency, precision and clarity, unlawful insertions and restrictive clauses should be clearly avoided so as to create a successful agreement.

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