TABLE OF CONTENTS An intellectual property(IP) licence is effectively a promise not to sue for infringement of an intellectual property right (IPR). If litigation occurs, it is frequently settled by an alleged or proven infringer taking a licence. Payments of damages in litigation are often set on the basis of a notional royalty. It is therefore appropriate to consider the two topics in a single chapter.
While the most direct way of recovering the cost of developing an engineering technology is to make a product and sell it, with the IPRs keeping competitors out of the market, this is not the only way.
Sometimes an idea is so fundamental that one company cannot itself exploit it to the full. This was the position when the transistor was invented. Western Electric granted licences under the basic transistor patents to a large number of companies worldwide, who all paid a small royalty (1 or 2 per cent) for the right to use the invention.
In that case, the patent owner clearly had the industrial muscle to litigate if the patent was infringed, so taking a licence was the safest course. Some licences are granted after the early stages of litigation and this is often the best solution to the dispute, and the most profitable in the long term for both parties. It is reported that in the year 2000, IBM made US$1.5 billion from granting licences. Both large and small companies can benefit from exploitation of IPRs in this...
