Quick hypothetical: Assume that a patent owner has licensed its patent to a manufacturer. Subsequently, a third party buys the patent through a bona fide purchase and without any notice of the prior license and with a promise from the prior owner that the patent has not been licensed.

Question: Is the patent still subject to the license?

31 thoughts on “

  1. 10

    The answer is yes and the contract should have included an indemnity clause allowing the new patent holder to sue the previous holder in lieu of the licensee.

  2. 9


    Thanks for bringing up this hypothetical. As you can see from the comments, this topic is of great interest and has stimulated quite a bit of thinking about what is not necessarily a trivial answer.

    1. 9.1

      Thanks EG.

      One course that I teach is the required 1L property law course. Some of my favorite topics to teach are those where the legal chain of title is broken such as under UCC 2-403 (someone with voidable title can sell good title), recording statutes (failure to record an interest opens the door to divestment), and adverse possession.

  3. 8

    Just pity the poor soul who takes a licence to a patent that is not registered on the PTO website.

      1. 8.1.1

        Mellow, the phrase to a patent was clear in context. Clearly the phrase was descriptive of license and the word “that” was clearly talking about the license.

        We really do not need another pedantic smart@$$, do we?

  4. 7

    From Boehringer Ingelheim Vetmedica, Inc. v. Merial, Ltd., 2010 WL 174078 (D.Conn. Jan. 14, 2010):

    an assignee of a patent takes title to the patent subject to existing licenses. See, e.g., L.L. Brown Paper Co. v. Hydroiloid, Inc., 118 F.2d 674, 677 (2d Cir.1941); In re Cybernetic Servs., Inc., 252 F.3d 1039, 1052 (9th Cir.2001) (“It had long passed into the text-books that … an assignee acquired title subject to prior licenses of which the assignee must inform himself as best he can, and at his own risk.”) (citing inter alia, Keystone Type Foundry v. Fastpress Co., 272 F. 242, 245 (2d Cir.1921)); Jones v. Berger, 58 F. 1006, 1007 (C.C.D.Md.1893) (“A subsequent assignee takes title to the patent subject to such [unrecorded] licenses, of which he must inform himself as best he can at his own risk.”).

    1. 7.1

      I should point out that Boehringer was pretty much this exact fact pattern. A company called PSC owned a patent. It licensed the patent under two agreements to Boehringer. Then PSC assigned the patent to a third company, Meriel. That assignment didn’t mention the licenses to Boehringer and in fact warranted that the assignment is free of any licenses or encumbrances. Meriel sued Boehringer, and Boehringer filed a DJ action claiming that it indeed still had a license to practice the patent under the licenses it signed with the original patent owner (PSC).

      Anyway, see also Innovus Prime, LLC v. Panasonic Corp., 2013 WL 3354390 (N.D.Cal. July 2, 2013):

      It is a longstanding principle that an assignee of a patent takes the patent subject to prior licenses. Keystone Type Foundry v. Fastpress Co., 272 F. 242, 245 (2d Cir. 1921); see also L.L. Brown Paper Co. v. Hydroiloid, Inc., 118 F.2d 674, 677 (2d Cir. 1941) (“The assignee of a patent taking title subsequent to the granting of a license under patent receives no more than the former owner’s interest, including the usual rights of a patent owner diminished by the licensee’s right to use the patented process within scope of its license.”). Patent owners cannot transfer an interest greater than what they possess, so assignees “take[ ] a patent subject to the legal encumbrances thereon.” Datatreasury Corp. v. Wells Fargo & Co., 522 F.3d 1368, 1372–72 (Fed. Cir. 2008) (explaining that agreements involving the actual use of the patent “run with the patent” and are binding on subsequent owners, but holding that arbitration clauses in license agreements do not involve actual use and do not run with the patent). Thus, assignment results in the assignee “stepping into the shoes with regard to the rights that the assignor held and not in an expansion of those rights.” Medtronic AVE, Inc. v. Advanced Cardiovascular Sys., Inc., 247 F.3d 44, 60 (3d Cir. 2001); see also Epistar Corp. v. Int’l Trade Comm’n, 566 F.3d 1321, 1333 (Fed. Cir. 2009) (“Black letter contract law states that the assignment of a contract to an assignee … only changes the obligated party, not the scope of the obligation.”). Assignment transfers assignor’s contract rights, “leaving them in full force and effect.” Medtronic, 247 F.3d at 60. In sum, “one cannot convey what one does not own.” TransCore, 563 F.3d at 1275.


          Non-exclusive license runs with the patent like a lien on real property. Digihold Corp. v. Dirigod Metals (1942) and LL Brown Paper v. Hydroiloid (1941) are two early cases too.

          Appellee’s license became one under the patent as soon as it was issued to Lee. Then Lee as the patent owner, disregarding for simplicity any other licenses, had all the exclusive rights granted by the patent except as they were diminished by the appellee’s license rights. What Scherbak received on the assignment of the patent by Lee could not, of course, exceed Lee’s interest and so Scherbak took the usual rights of a patent owner diminished by appellee’s right to use the patented process within the scope of its license. Keystone Type Foundry v. Fastpress Co., 2 Cir., 272 F. 242. That is to say, the scope of the appellee’s rights under its license to practice the invention remained unaffected by the assignment of the patent itself.



            I think your interpretation here of the Digihold case as being one of non-exclusive license is in error.

            Even exclusive licences may reserve a type of ‘shop-rights’ and still be considered exclusive in order to inure the aspect of total transfer.


              Well, you’re right that in theory any assignment is subject to pre-existing licenses. I mostly assumed that this usually comes up in the context of non-exclusives licenses in the context of a manufacturer.

              The language of Digihold that I keep in my notes about rights of licensees is just this bit (mostly because its about TSs and TMs, not patents/copyrights): “The patent and copyright statutes confer upon an inventor or author, the exclusive right to make, use and sell articles embodying his invention or authorship, and any person acquiring by assignment or license an interest in such invention or authorship takes title subject to prior assignments or licenses of which the assignee must inform himself as best he can and at his own risk, but the owner of a secret process not patented has no such exclusive right and a person acquiring by assignment or license an interest in such process, takes it subject only to such prior assignment or transfers which he expressly or impliedly contracts with the assignor to respect. ”

              In other words, the duty is on the assignee to do the clearances or get contractual assurances in an assignment that can establish fraud/breach and the corresponding damages.


              good points (as is the point below about the nature of the right being personal property)

  5. 6

    OTOH, it may matter whether the license is an exclusive license, and whether it was in writing and recorded.

    35 USC 261 para 2 is a statute of frauds for grants and conveyances of “an exclusive right” (incl. with geographical limitations), as distinct from assignments. The last paragraph of 261 expressly states that “An assignment, grant or conveyance shall be void as against any subsequent purchaser . . . 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.”

    So given the statute on its face, I’d say if the license were an exclusive license, even if limited in scope or geography, the patent as sold may not be subject to that license if it wasn’t in writing and recorded. But I haven’t gone to the case law to see the extent to which this provision has been enforced — maybe others have.

    1. 6.1

      You’re absolutely on point with 35 USC 261:

      Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp., 271 F.3d 1081, 1087, 2001 U.S. App. LEXIS 24813, 12, 60 U.S.P.Q.2D (BNA) 1785 (Fed. Cir. 2001)

      In Rhone-Poulenc, a defendant, Monsanto, sought to invoke what the court there described as the “bona fide purchaser defense” against a claim for patent infringement. Monsanto was a sublicensee from a party that had been found to have obtained its license by fraud, but Monsanto asserted that it had no knowledge of the fraud when it obtained the sub-license. Describing the defense, the court stated that under some circumstances “the bona fide purchaser defense is governed by” the recordation statute, 35 U.S.C. § 261. 284 F.3d at 1327. The court ultimately found that the statute did not apply in that case, in part because of the circumstances under which Monsanto acquired its sublicense, 284 F.3d at 1327, and in part because Monsanto did not acquire legal title to the patent, but at most was a licensee. 284 F.3d at 1329-31.

      The Court nonetheless recognized that federal law governed the availability of such a defense in a patent case, and sought to articulate what it described as “a federal rule concerning the bona fide [22] purchaser defense.” 284 F.3d at 1328. Citing to the general common law rule regarding bona fide purchasers in a non-patent context, the court stated that “generally, a bona fide purchaser is one who purchases legal title to property in good faith for valuable consideration, without notice of any other claim of interest in the property.” Id. at 1329. In further describing the rationale underlying the defense, the Federal Circuit stated that:

      “the bona fide purchaser rule exists to protect innocent purchasers of property from competing equitable interests in the property because “strong as a plaintiffs equity may be, it can in no case be stronger than that of a purchaser, who has put himself in peril by purchasing a title, and paying a valuable consideration, without notice of any defect in it, or adverse claim to it . . .” Boone v. Chiles, 35 U.S. 177, 210, 9 L. Ed. 388 (1836). At common law, however, it was quite clear that one who did not acquire title to the property could not assert the protection of the bona fide purchaser rule.:
      284 F.3d at 1329.

      Because Monsanto did not acquire title to the patent, the court found that [23] the defense was not available to it. Id. at 1329-31.

      [quote discussing Rhone-Poulenc taken from] V-Formation, Inc. v. Benetton Group, SpA, 2006 U.S. Dist. LEXIS 13352, 21-23, 2006 WL 650374 (D. Colo. Mar. 10, 2006)

    2. 6.2

      pikku, good argument, and it might be sufficient if the exclusive license is effectively a grant of title. But, unless it is, I might suggest that the recording statute does not impose a duty of recording because the grant is not a conveyance of title, in whole or in part, or to any part of the US.

      1. 6.2.1

        The statute of frauds paragraph of the statute refers to assignments in one sentence, and to grants and conveyances of “an exclusive right” in a separate sentence. So I read that to mean that the “grant of an exclusive right” is something different from (i.e. less than) an assignment of title, yet is covered by the statute of frauds.

        The recording paragraph uses the words “assignment, grant or conveyance”, which parallels the statute of frauds paragraph. That’s how I read the recording requirement against an exclusive license.


          Well you do make a good case. Do you have any real cases to support your view?

    3. 6.3

      Seems kinda strange that only an exclusive license would be voided if not recorded. Any kind of contractual encumbrance on the patent would seem to be of interest to a bona fide purchaser of the patent … which I assume is part of the justification for the paragraph you mentioned.

      What if it’s an exclusive license to practice just one claim of a patent with multiple claims? Does 35 USC 261 para 2 apply in that instance?

      1. 6.3.1

        See 4.2.1. I could see “an exclusive right” of a single claim to fall within the statute.

        Certainly an exclusive licensee of any rights under a patent would do well to record the license.

    4. 6.4

      This analysis strikes me as flawed.

      In 35 USC 261, first paragraph, only a conveyance of the entire patent or application “shall” be in writing. In contrast, conveyances of exclusive rights (e.g., exclusive licenses) “may” be in writing. Thus, 35 USC 261, third paragraph cannot be read to include licenses–even exclusive licenses–when 35 USC 261, first paragraph, doesn’t even require that such conveyances be in writing.

      Further, 35 USC 261, third paragraph, is best read as referring to the second paragraph, which only refers to conveyances of entire patents or applications, and not to conveyances of exclusive rights. Therefore, it seems that only a conveyance of the entire patent or application must be recorded.

      Lastly, this analysis is consistent with the extant case law. I’m unaware of any case that interprets the third paragraph to refer to the mere conveyance of certain exclusive rights.

      That being said, if an “exclusive license” is so expansive as to constitute a de facto assignment, then 35 USC 261 may be implicated. But as long as the licensor retains some rights, then 35 USC 261 is not implicated.

      1. 6.4.1

        Well, I think you’re going to send me to the books after all. I see what you mean, but I read the para 2 clause “patents . . . shall be assignable” to mean something different than “patentee . . . may in like manner grant and convey”. The subjects of the two clauses are different (“patents” vs. “patentee”). The second sentence would make little sense if it read “the patentee . . . shall in like manner grant and convey . . . ” — that would read like a mandatory license.

        Plain reading of the text is that the first sentence permits the assignment of patents (shall be assignable) and the second as a statute of frauds for exclusive licenses. But again, I see what you mean — I’ll have to do a little research.


          Quick look via USCA didn’t turn up anything on point that I saw — mostly cases on how granting of a non-geographically-restricted exclusive license to all rights under the patent for its life amounted to an assignment.

          Anyone else?

  6. 5

    how could the license not be valid? Unless it had a termination provision based on assignment of the original patent. Of course, the third party ‘purchaser’ may have recourse against the original patentee if their purchase agreement represented there were no licenses.

  7. 4

    Yes. The assignment of a patent should not have any effect on the licensee’s ability to practice the patent. The only license cleansing process for patents that I’m aware of is bankruptcy. And even there, licensees have the opportunity to record their licenses with the court and have the granted rights and obligations preserved. If these rights are preserved in bankruptcy sales, I can’t imagine that deceitful sales allow for easier removal of encumbrances on the patent grant.

    The patent grant is a property right and, like real property, encumbrances can potentially run with the property (I think). Here, so long as the license does not allow for unilateral termination, the licensor is likely to have access to the rights granted by the license so long as she refrains from breach.

    In this case, the purchaser’s remedies will depend on the representations and warranties made in the purchase agreement. Here, the seller has promised that no license existed, so the buyer may be able to void the sale and renegotiate for a lower price based on the existence of a license. Baring that, the only damages I can see the purchaser being owed by the seller are whatever continuing royalties the licensee owes to the seller in the future and perhaps a pro rata share of whatever the initial license payment was.

    I can’t imagine that the licensee would be punished for the actions of the seller. Should the license be cancelled by the sale (which I don’t believe likely), I would imagine that the licensee would be able to sue the seller for breach of the license (unless for some reason the license was conditioned on the seller’s possession of the patent grant) and also as a third party beneficiary on the contract of sale of the patent, since the licensee relied on the license’s existence which was terminated by the sale.

    Of course I could be completely off base on all of this, so I welcome any critique of my analysis.

    1. 4.1

      “35 U.S.C. 261 Ownership; assignment.
      Subject to the provisions of this title, patents shall have the attributes of PERSONAL property
      Applications for patent, patents, or any interest therein, shall be assignable in law by an instrument in writing.”

    1. 3.1

      Anon, I have a patent I just purchased from IBM. It is in the computer processor field. IBM has assured me that the patent has not been licensed. Assured me.

      Moreover, they have assured me that the patent is marked. Assured me, they did.

      The patent covers every computer made on the planet. If IBM is accurate in their statements, we have a gold mine here.

      Are you interested in a JV to license/enforce? Buy in is a mere $1Million up front — a song compared the value of a patent so widely infringed!


      Ah, what did you say? What was that about the Brooklyn Bridge?

  8. 2

    Dennis, this has always been the law – that the transfer is subject to existing licenses.

    If the PO lies, there is a breach. The license is still good. Damages might be awarded against the PO for lying.

  9. 1

    Not a lawyer, but I’d be sad and puzzled if it was not still licensed. Licensee acted in good faith, and original patent owner had right to license, therefore it is licensed.

    It sounds instead like a fraudulent sale of patent to the third party — he bought a bull, but was sold a steer.

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