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Many companies taking licenses under patents prefer to take exclusive licenses. Their reasons, and the ramifications of doing so, can be many and complex. But there are just as many complexities and ramifications for the owner of the patent to consider before granting an exclusive license. A patent owner may want to consider, for example, whether the proposed licensee can perform well enough under the proposed contract to warrant the giving of an exclusive license. Under the law, an exclusive license amounts to something close to actual ownership of a patent, at least for as long as the license exists. Indeed, an exclusive licensee can generally prevent even the patent owner from exploiting the invention. And there is another, often overlooked, reason, with more significant potential ramifications, that a patent owner might want to consider making a license non-exclusive. This issue arises under bankruptcy law. The bankruptcy code provides that a bankrupt holder of an executory contract (such as a typical patent license) can assign rights under an intellectual property license to a third party without the consent of the licensor, on a showing of good business judgment (which is often, in practice, a low hurdle to clear). In other words, if a bankrupt licensee decides to assign to the licensor’s most deadly competitor and the court approves (which it is quite apt to do), there is nothing the licensor can do about it. This is true regardless of whether provisions in the license agreement state that the license is nonassignable. However, one of the clearest exceptions to this rule is in the case of a nonexclusive patent license. Most courts agree that a nonexclusive patent license is personal to the licensee, and assignable only with the consent of the licensor. Before concluding a patent license agreement, a patent owner should discuss with an attorney the advisability of making the license nonexclusive. Where assignment of the license in case of bankruptcy may be a concern, the following clause might serve as a starting point: Upon and subject to the terms and conditions herein set forth, Licensor hereby grants to Licensee the nonexclusive right and license, during the term of this Agreement, to make, have made, use, sell, and offer for sale the Licensed Invention. Licensee shall have no right to grant any sublicense to the Licensed Invention. Matthew Marquardt is an associate in the Patent Group of Brown Raysman Millstein Felder & Steinerin New York. This sample clause is intended to serve solely as an exemplar and may need to be modified to conform to the legal requirements of your jurisdiction. It in no way constitutes legal advice.

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