Information on Patent Licensing: Carrot Licenses and Stick Licenses

In the classic Western film “Yellow River” the old prospector declares that “thar’s gold in them thar hills!” Just as the crusty old prospector files a claim, and hopes that no one jumps his claim, an inventor applies for a patent for his claim, in this case an invention that is not real property, but intellectual property. And once he receives that claim in the form of a patent, anyone who jumps his claim is infringing on his intellectual property. And a few prospectors – and more than a few inventors − have struck the Mother Lode with the claims and patents.

Two Types of Patent Licensing: In the IP community, there are “Carrot Licenses” and “Stick Licenses,” and these terms come from the carrot-and-stick analogy. A carrot license is a license to practice a patented invention that is entered into amicably, while a stick license is often the result of a Patent Infringement Lawsuit that resulted in the infringer of the patented invention agreeing to license the patent in question.

Patent Brokerage: Just as there are stock brokers and real estate brokers, there are patent brokers who do essentially the same thing as their stock market and real estate colleagues. A patent broker or patent brokerage firm will find clients (usually businesses) to license (or, possible, buy) your patent. These, of course, are carrot licenses.

Carrot Licenses: It has been claimed by many in the IP community that there really are no carrot licenses, and that any user of a patented invention would rather not pay a fee to use it. Whether or not the licensee of the patent likes it or not, most such licensing agreements are set up as royalty payments that are paid monthly, quarterly or annually and are based on unit sales of the product or service that used the patented technology.

Stick Licenses: Usually the result of Patent Infringement Lawsuit, a stick license can be part of an out-of-court settlement, or it can be negotiated between the patent owner and the patent infringer after the patent owner has won his patent infringement lawsuit. Once the court has found that the defendant did, in fact, infringe the plaintiff’s patent, if the patent infringer wants to continue to practice that invention, it will have to secure a license from the patent owner or face a subsequent lawsuit! Stick licenses are often lump-sum payments that are computed based on an estimation of the number of units of the product that uses the patent that will be sold over the remaining life of the patent.