EXCLUSIVE GRANTS BACK

INTELLECTUAL PROPERTY RIGHTS LAW

6TH Semester

Submitted by: Submitted to:

Gulshan DR. Geetika Walia

Roll No.: 18071 (Asst. Prof. of Law)

RAJIV GANDHI NATIONAL UNIVERSITY OF LAW,

PUNJAB

15 March , 2021

ACKNOWLEDGEMNT
 ACKNOWLEDGEMENT

I have put effort in this project. However, it would not have been possible without the kind
support and help of many individuals and organizations.

I would like to extend my sincere thanks to all of them. I am highly indebted to Dr.Geetika
Walia for his guidance and constant supervision as well as for providing information
regarding the project & also for their support in completing the project.

I would like to express my gratitude towards my parents & member for their kind
cooperation and encouragement which help me in completion of this project.

I would like to express my special gratitude and thanks to industry persons for giving me
such attention and time. My thanks and appreciation also go to my fellow in developing the
project and people who have helped me out with their ability.
 TABLE OF CONTENTS

1. INTRODUCTION

2. TYPES OF INTELLECTUAL PROPERTY

o COPYRIGHT
o PATENTS
o TRADEMARK
o INDUSTRIAL DESIGN
o GEOGRAPHICAL INDICATIONS
o TRADE SECRETS

3. INTELLECTUAL PROPERTY RIGHTS

4. BACKGROUND
o LICENSING
5. TYPES OF GRANT LICENSE
o EXCLUSIVE LICENSE
o NON-EXCLUSIVE LICENSE
o SOLE LICENSE

6. AN AMERICAN PERSPECTIVE
7. CASE LAWS

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INTRODUCTION
INTELLECTUAL PROPERTY

In general terms, intellectual property is any product of the human intellect that the law
protects from unauthorized use by others.  The ownership of intellectual property inherently
creates a limited monopoly in the protected property.  Intellectual property is traditionally
comprised of four categories:  patent, copyright, trademark, and trade secrets.

Common law did not recognize intellectual property rights. Justice Brandeis communicated
this belief in his dissent to International News Service v. Associated Press:"The general rule
of law is, that the noblest of human productions—knowledge, truths ascertained, conceptions,
and ideas—become, after voluntary communication to others, as free as the air to common
use."

TYPES OF INTELLECTUAL PROPERTY

COPYRIGHT

Copyright is a legal term used to describe the rights that creators have over their literary and
artistic works. Works covered by copyright range from books, music, paintings, sculpture and
films, to computer programs, databases, advertisements, maps and technical drawings1

PATENT

A patent is an exclusive right granted for an invention. Generally speaking, a patent provides
the patent owner with the right to decide how - or whether - the invention can be used by
others. In exchange for this right, the patent owner makes technical information about the
invention publicly available in the published patent document

TRADEMARK

A trademark is a sign capable of distinguishing the goods or services of one enterprise from
those of other enterprises. Trademarks date back to ancient times when artisans used to put
their signature or "mark" on their product

1
https://www.wipo.int/about-ip/en/

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INDUSTRIAL DESIGNS
An industrial design constitutes the ornamental or aesthetic aspect of an article. A design may
consist of three-dimensional features, such as the shape or surface of an article, or of two-
dimensional features, such as patterns, lines or color

GEOGRAPHICAL INDICATIONS
Geographical indications and appellations of origin are signs used on goods that have a
specific geographical origin and possess qualities, a reputation or characteristics that are
essentially attributable to that place of origin. Most commonly, a geographical indication
includes the name of the place of origin of the goods

TRADE SECRETS
Trade secrets are IP rights on confidential information which may be sold or licensed.  The
unauthorized acquisition, use or disclosure of such secret information in a manner contrary to
honest commercial practices by others is regarded as an unfair practice and a violation of the
trade secret protection.

INTELLECTUAL PROPERTY RIGHTS

The products of the human intellect that comprise the subject matter of intellectual property
are typically characterized as non-rivalrous public goods.  Essentially, this means that the
same product may be used simultaneously by more than one person without diminishing the
availability of that product for use by others2. 

The law of intellectual property can be seen as analogous to the law of tangible property in
that both consist of a bundle of rights conferred upon the property owner.  However, the law
of intellectual property is separate and distinct from the law of tangible property.  Where the
right of exclusive possession is at the core of the bundle of rights protecting real and personal
property, land and chattels, the same can not be said of intellectual property.  The law of
intellectual property is commonly understood as providing an incentive to authors and
inventors to produce works for the benefit of the public by regulating the public's use of such
works in order to ensure that authors and inventors are compensated for their efforts.

2
https://www.law.cornell.edu/wex/intellectual_property

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Congress derives its power to regulate patents and copyrights from the "intellectual property
clause" of the Constitution. See U.S. Constitution, Article I, Section 8.  Congress' power to
regulate trademarks is constitutionally grounded in the Commerce Clause.  The U.S. Patent
and Trademark Office (PTO) is responsible for issuing and monitoring federally registered
patents and trademarks.  Although patents are exclusively governed by federal law,
trademarks may also be regulated by State law.  Copyrights are exclusively regulated by
federal law and must be registered with the U.S. Copyright Office to be enforceable.  Trade
secrets are primarily regulated at the State level, and are traditionally subject to the laws
of unfair competition3

BACKGROUND

LICENSING

A license agreement is established when an owner of a patent concludes an agreement with

another party which enables use of the patent without risking infringement on the original
patent. The owner of the patent becomes the licensor and the user the licensee. The right to
utilise the patent is temporary and the ownership remains with the licensor. The licensee has
no right to exercise any use of the patent after the license agreement expires. The simplest
forms of license agreements contain two parties4.

Normally, a license agreement has to be determined by the parties involved which usually
have different technological needs and economic abilities. A license agreement can consist of
two companies but also involve complex arrangements between companies located cross-
border. It is common that the party, who was considered the licensee in the first arrangement,
starts licensing to third parties, so called sublicensing. The arrangement of sublicensing must
be approved in the initial agreement. The license agreement can cover one intellectual
property but can also involve a bundle of rights.

A simple license agreement can be arranged with three different types of exclusivity. If the
agreement does not contain any type of restriction of exclusivity it is called a nonexclusive
license. If a licensor is hindered to produce or license the technology rights to third parties it
is called an exclusive license. The restriction can apply to a limited geographical area or a

3
Warren, Z Technology Licensing an Settlements of IP Disputes: Implications of the European Commission’s
New Regime, Journal of Competition Law & Practise, Vol. 5 Issue 6, 2014, 365
4
https://www.taylorwessing.com/synapse/commerical_exclusive_nonexclusive.html

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particular use. The third type is a sole license which is when a licensor undertakes not to
license to third parties within a restricted geographical area. The licensor can still license to
several licensees but divide the geographical market amongst them through different types of
sales restrictions which are incorporated into the agreement. A sole license generally permits
the licensor to enter the defined market. Furthermore, license agreements can be on a
horizontal and a vertical level. Every license agreement has its own impact on the market
depending on the arrangement between the parties involved.

TYPES OF GRANT LICENSE

When granting or receiving a licence under intellectual property rights, the parties need to
consider at the earliest stage the degree of exclusivity that will be granted.

A. EXCLUSIVE LICENSE
Exclusive Licence means that no person or company other than the named licensee
can exploit the relevant intellectual property rights.  Importantly, the licensor is also
excluded from exploiting the intellectual property rights.  If the licensor wishes to
continue to conduct any activity covered by the intellectual property (for example, a
university licensor may wish to continue its research), or if the licensor has previously
granted any rights in relation to the intellectual property, the exclusive licence will
need to expressly state that it is exclusive subject to those carve-outs.

B. NON-EXCLUSIVE LICENSE
Non-Exclusive Licence grants to the licensee the right to use the intellectual property,
but means that the licensor remains free to exploit the same intellectual property and
to allow any number of other licensees to also exploit the same intellectual property5.

A licence can also take a middle-ground between exclusive and non-exclusive.  Such
a licence is sometimes known as a "co-exclusive" licence and is one in which the
licensor grants a licence to more than one licensee, but agrees that it will only grant
licences to a limited group of other licensees. The group of licensees may be

5
Public Consultation on the draft proposal for a revised block exemption and guidelines for technology
transfer agreements. Answer by Licensing Executives Society, p. 23.
http://ec.europa.eu/competition/consultations/2013_technology_transfer/les_en.pdf. (Accessed 20151015).

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 identified by name, description (a licence will only be granted to licensees who meet
certain criteria), or simply by number (a limited number of licenses will be granted by
the licensor).

C. SOLE LICENSE
A far less commonly used form of licence is a Sole Licence.  This is typically
understood to mean that the licence is exclusive, except that the licensor also reserves
full rights to exploit the intellectual property itself. The licensor does not have the
right to grant any other sub-licences.  Whilst this is the typically understood meaning,
if this is the intention of the parties, it would be preferable for them to explicitly state
in the agreement the extent of the rights of each of the licensor and the licensee.

AN AMERICAN PERSPECTIVE

BACKGROUND
In the U.S., the practise of licensing was controlled by the so called “nine nono’s” in the
1970’s. Exclusive grant backs that obliged the licensee to assign or license patents to the
licensor were one of the “nine nono’s”. The general view was that they reduced innovation.
A rule of reason approach came in 1988 which was used to evaluate the circumstances in
each licensing agreement, if the outcome of the agreement would benefit the market,
potential negative effects could be accepted under a rule of reason approach. 6 When the
antitrust guidelines came in 1995 the grant back provision in technology licensing agreements
was not illegal per se since they were considered to have procompetitive effects, particularly
under nonexclusive terms. By allowing grant backs the licensee and the licensor could share
risks relating to research and development and provide a reward to the licensor for
contributing to possible further innovation by promoting subsequent improvements. The risks
of anticompetitive effects were considered since the incentives of the licensee could be
reduced by a grant back provision7. It did not necessarily exclude the possibility to use grant
back provisions since the anticompetitive effect can be balanced against the benefits of the
agreement, resulting in a valid contract. The US Guidelines in 1995 favoured 102 non-
exclusive grant back clauses over exclusive ones.

6
https://www.contractstandards.com/public/clauses/grantback-license
7
Gilbert, S Antitrust Issues in the Licensing of Intellectual Property: The Nine NoNos Meet the Nineties,
Brookings Papers: Microeconomics, 1997, 283349.

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In 1997 Gilbert and Shapiro analysed the US lower courts reasoning and came to the
conclusion that there was a list to consider when evaluating grant backs;
a) the exclusivity in the agreement between the parties
b) the licensee’s right to retain use of the improvement
c) the relationship among the parties
d) the licensor’s right to grant any sublicenses
e) the duration of the grant backs
f) the royalty applied to the grant back
g) the parties market power
h) the coverage of the grant backs
i) whether the grant back clause affect the licensee’s incentive to innovate for the licensor.

CASE LAWS

Prior to Hartford Empire Co. v. United States, grant backs was never found to be illegal.
The Supreme Court chose to impose a limited prohibition on grant backs due to the concern
of reduction of innovation8.
In Transparent -Wrap Machine Corp. v. Stoked & Smith9 Co. the criteria for determining
whether grant backs violate antitrust laws were considered for the first time. Transparent
Corporation had patents on a machine that manufactured, filled and sealed cellophane
packages. Stokes & Smith Co. obtained an exclusive North American license to
Transparent’s patented process, including an assignment back of rights to patents that
improved the machine or were used in connection with the machine. According to the
contract, the licensee should submit any patentable idea to the licensor so that the licensor
could apply for patents derived from these ideas. The licensee had access to utilise these
patents on any noncompeting product with no additional payment. Stokes & Smith sued
Transparent Corporation stating that the grant back clause was not enforceable due to the fact
that it was against competition law. Prior to the lawsuit Stokes & Smith had developed an
improvement that fell within the agreement but they refused to assign it to Transparent
Corporation. When the case came to the Court of Appeal it was held that the grant back
clause was used to force others to buy what was outside ”the four walls of the patent” which
meant that the licensor would have control over the improvements even after the expiration of

8
HartfordEmpire Co. v. United States 323 U.S. 386 (1945).
9
TransparentWrap Machine Corp. v. Stokes & Smith Co. 329 U.S. 637 (1947).

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the original patent. The Supreme Court did not agree, stating that patent statues allow for
assignment for any consideration, including an exchange for rights to continue to use the
basic patent. The clause did not constitute a misuse of a patent’s lawful monopoly to use or
acquire another lawful monopoly. The combination of the two legal monopolies could only
be illegal if the purpose was to substantially lessen competition or create a monopoly. The
grant was not considered illegal per se since there had been no proof of misuse and there had
been an opportunity to demand any type of consideration in exchange for the patent. A test of
reasonableness of the restraint was introduced in the decision. If there is no evidence that the
grant back enhances the position of the patent holder or that others who desire a license
would be excluded by the agreement, there is no reason to invalidate the agreement.

In United States v. E.I. Dupont de Nemours & Co10. grant backs were approved given that
1) there was no proof that anyone had been denied a license,
2) the licensee could not utilise any improvement without the basic Dupont patents
3) the contract only covered moisture proof cellophane, and
4) Dupont charged an additional royalty for its improvements that later on were added to the
license. United States v. National Lead ruled against grant backs in the agreement, but the
court did not rule out broad grant backs per se. In this case there were multiple restrictions
upon the licensee which resulted in the invalidation of the grant back clause such as
territorial, production and price restrictions.

10
United States v. E.I. Dupont de Nemours & Co. 118 F. Supp.41 (D.Del. 1953) aff´d 351 U.S.377 (1956).

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