The Difference Between an Assignment and a License of a Patent

The transfer of rights in a patent generally fall into two categories: an assignment and a license. The transfer is usually accomplished by an agreement.

Whether the agreement at issue is an assignment or a license matters because generally an assignee can sue for infringement alone, while a licensee of less than substantially all of the patent rights cannot sue for infringement alone without the patent owner.

A patent grants the owner certain rights, such as the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States. 35 U.S.C. § 154(a)(1) 

Usually, an assignment transfers all of the rights* of one party in a patent to the recipient (the assignee). Vaupel Textilmaschinen KG v. Meccanica Euro Italia S.P.A., 944 F.2d 870, 875 (Fed. Cir. 1991); 35 USC 261. Also, a transfer of substantially all of the patent rights can be considered an assignment for the purposes of standing to sue for infringement. A transfer of less than substantially all of the rights, is a mere license. It is the content and legal effect of the agreement that determines whether it is an assignment or license, not its title.

In the Vaupel case, the court found the agreement at issue there transferred substantially all of the rights in the patent, where the seller retained the following rights: “1) a veto right on sublicensing by Vaupel; 2) the right to obtain patents on the invention in other countries; 3) a reversionary right to the patent in the event of bankruptcy or termination of production by Vaupel; and 4) a right to receive infringement damages.” Therefore, despite the seller retaining these rights, the agreement at issue was considered an assignment.

In contrast, in Sicom Sys. v. Agilent Techs., Inc., 427 F.3d 971, 978-979 (Fed. Cir. 2005), Canada licensed the patent at issue to plaintiff Sicom. The court found the license did not transfer substantially all of the rights, where Canada reserved the right to use the patented technology itself, to veto Sicom’s reassignment of its rights, and to sue for non-commercial infringement. Canada also retained legal title to the patent.

The line between a transfer of substantially all of the rights and less than substantially all of the rights is gray. Ignoring this issue and simplifying it, an assignment usually transfers everything (including legal title) whereas a license grants less than all of the rights and reserves rights to the person or entity granting the license.

*The Supreme Court has also said that the transfer of an undivided portion or share of a patent can also be an assignment, but then assignor and assignee must act together to sue for infringement. Waterman v. Mackenzie, 138 U.S. 252 (1891).

Record Patent Assignments or Risk Loss of Rights

RecordPatentAssignmentThe case of CMS Industries, Inc. v. L. P. S. International, Ltd. is about how to loose rights in patents by not recording ownership changes with the U.S. Patent and Trademark Office (USPTO). It involved the seller trying to tell the public it was doing one thing (selling patents to a subsidiary company) while secretly reserving ownership for itself. It failed.

SEE International, Inc. assigned, in a first assignment, its rights in six patents to SEE’s subsidiary, Shoplifter International. But on the same day SEE and Shoplifter International entered into a second agreement purporting to transfer back to SEE all of the rights transferred to shoplifter under the first assignment.

The first assignment transferring rights to shoplifter international was recorded with the patent office. The second assignment was not.

Later Shoplifter International entered bankruptcy and its assets, including the six patents, were sold to a third party, Elmer Whitaker.

Whitaker’s licensee CMS filed a lawsuit against LPS international, another subsidiary of SEE. CMS Industries, Inc. v. L. P. S. International, Ltd., 643 F.2d 289 (5th Cir. 1981). LPS and SEE claimed that the second unrecorded agreement prevented CMS from winning its lawsuit and that SEE still had rights in the six patents.

But because SEE failed to record the second agreement with the USPTO, the second agreement was unenforceable against Whitaker who had no knowledge of it at the time that Whitaker acquired rights in the patents. The court held that Whitaker was the proper owner of six patents.

Patent Ownership Recording System

SEE failed because 35 U.S.C. 261, which provides “An interest that constitutes an assignment, grant or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage.”

That means that if an assignment is not recorded at the USPTO, it will not be superior to rights obtained by a third party for value if that third party did not have knowledge of the unrecorded assignment.

This provision is similar to many state-based systems of recording ownership of land.

Section 261 encourages patent owners to file (record) evidence of their ownership of a patent with the USTPO. This allows people who enter into transactions regarding those patents to look to the public record to determine whether the person they’re dealing with is the actual owner or not.

The recording system discourages a seller from selling rights to a first person and then selling the same rights to a second person. The first person will have an incentive to record that transfer with the USPTO because of the protections provided by section 261.

If the first person records at the USPTO, the second person, before proceeding with the transaction, can check the patent office to see that the first person is the owner. The second person then will not proceed with the transaction from the original seller who no longer has rights in the patents.

Record or Be At Risk

Therefore, when you purchase patent rights it is very important for you to record at the USPTO the assignment (or other transfer document) transferring those patent rights to you. Otherwise you could lose rights in the patents to someone who purchases rights in the patents later without knowledge of your ownership/assignment.