intellectual-property, licensingI plan to manufacture and sell a hardware product that has elements which are patent-protected by more than one third party. When determining royalty rates for each party, does the fact that I will be paying to more than one party affect the rate I am expected to pay to each? Or will each party charge a similar rate regardless of how many other licenses are necessary to manufacture/sell the product?
I will be negotiating 1-2 licensing agreements in the near future, but my concern is that further down the line I may discover I am infringing on something else, and the total royalty rate will be beyond the threshold for which I am willing to continue the business. Is it reasonable to request from the licensors that they reduce their rate if necessary such that the total rate does not exceed some amount?
Are you sure that you need patent licenses at all? If you buy an "element" and that element is covered by a patent, then the person selling that element needs a license to sell that element to you. Because of patent exhaustion, you don't need a further license to use that element. Patent laws only allow the patent owner to receive one license fee for a single manufactured item. The patent owner cannot get a fee from a manufacturer and then from a later buyer of the product.
Let's take an example. Suppose you are building a phone and need to buy a wi-fi chip for the phone. There are likely many patents covering the wi-fi chip, but the company selling the wi-fi chip has already paid for a license so you can use the wi-fi chip however you want and do not need to pay for an additional license.
If you do need a patent license, then the owner of the patent likely licenses the patent on a regular basis and thus has a standard rate that applies to all licensees. You would pay the standard rate and wouldn't have room to negotiate. The standard rate would likely take into account the fact that licensees might need to license other patents. Frankly, the license rate will be set according to the laws of supply and demand. The license owner needs to set a reasonable rate so that people are willing to pay for the license.
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