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[Patentstudent]

I am discussing a possible license with a medium size company and they insist that the ownership of the patent shall be transferred to them.
Why would they need ownership instead of a good licensing contract which stipulates their exclusive rights and the conditions to which they have to comply in order to maintain the exclusivity?

Can someone please indicate what are the main risks for the licensor to transfer ownership of a patent to a licensee?
What would you recommend?

Thanks very much in advance.

 

[Kaitlin]

Why would they need ownership instead of a good licensing contract which stipulates their exclusive rights and the conditions [with] which they have to comply in order to maintain the exclusivity?

Control and predictability.

Can someone please indicate what are the main risks for the licensor to transfer ownership of a patent to a licensee?

What spring to mind are:

Tax consequences: I believe the sale would trigger capital gains in the proceeds received by an assignor (vocab: if you sell/assign the patent you're no longer a licensor but an assignor), while royalties would just be ordinary income to a licensor. 
Note in this regard that the IRS is very good at looking behind labels and won't rely on what a contract calls a transaction if the actuality indicates otherwise -- if it smells like a fish, looks like a fish, acts like a fish..., then it's a fish, no matter the label. 

Rights:
-To exploit the patent: If you assign away the patent you have no more say over how the patent is exploited.  Subject to the anti-competition laws, I presume, I believe this even means they could choose not to exploit the patent and no one, including yourself, would be able to use the invention till the patent expired. 

-To sue for infringement:  Usually only a patent owner can sue for infringement (the exception being the situation where an exclusive licensee has has been given virtually all the rights in the patent -- so for all intents and purposes he is the owner, in which case he'll be treated as the owner (above reference to smelling like a fish applies here, too).  So even if you got a license back to exploit the patent, you could run into problems.

What would you recommend?

[Assuming this is a real problem and not just a student exercise,] This is something you really should discuss with your own IP counsel, with whom you can lay out all the facts.  You don't want to make this deal on the basis of anonymous advice by folk who a) don't fully understand your situation and b) may not know as much as we appear to about the law. 

There are many factors at play in this area. 

[MYK]

Well, one obvious risk to the licensor is that if the licensee/assignee stops paying royalties and declares bankruptcy, ownership of the patent has already been assigned to the licensee/assignee, so the licensor is probably going to get screwed.

[Patentstudent]

Kaitlin and MYK, thank you very much for your advice.
This is not a student case.
Kaitlin, The tax consequences can be of particular importance in this case. I'll get advice from my IP counsel.

[bleedingpen]

I don't quite understand how someone could be a licensee and an owner of the same patent.

[Patentstudent]

I don't quite understand how someone could be a licensee and an owner of the same patent.

O.k., to be exact: I want to make them a licensee but they want ownership of the patent.

[bleedingpen]

I don't quite understand how someone could be a licensee and an owner of the same patent.

O.k., to be exact: I want to make them a licensee but they want ownership of the patent.

Well that is reasonable.  As owner of the patent, they control all rights at that point. 

If you remained owner and licensor and they built their business up substantially incorporating your patented product and then a dispute arose where they were no longer a licensee (such as you terminating license agreement), then they would be up XXXX creek without a paddle. 

[MYK]

I don't quite understand how someone could be a licensee and an owner of the same patent.

O.k., to be exact: I want to make them a licensee but they want ownership of the patent.

Well that is reasonable.  As owner of the patent, they control all rights at that point. 

If you remained owner and licensor and they built their business up substantially incorporating your patented product and then a dispute arose where they were no longer a licensee (such as you terminating license agreement), then they would be up XXXX creek without a paddle. 

That could be solved by drafting the licensing agreement such that the license is irrevocable for the full patent term except "for cause" (e.g., nonpayment of royalties, abandonment of the product, failure to meet targets, etc.).

Requiring assignment is a bit much, in my (non-legal) opinion.