This post continues the series about potential patent licensing “no-nos.” The last installment may be viewed here.
Sometimes, patent owners require licensees to grant the patentee rights to any improvements to the licensed technology or to any subsequently-developed and related patents. These provisions – known as “grantbacks” – can be either exclusive or non-exclusive.
As the DOJ / FTC antitrust and IP guidelines state:
Grantbacks can have procompetitive effects, especially if they are nonexclusive. Such arrangements provide a means for the licensee and the licensor to share risks and reward the licensor for making possible further innovation based on or informed by the licensed technology, and both promote innovation in the first place and promote the subsequent licensing of the results of the innovation. Grantbacks may adversely affect competition, however, if they substantially reduce the licensee’s incentives to engage in research and development and thereby limit rivalry in innovation markets.
Grantbacks are not per se unlawful. For example, in Transparent-Wrap Machine Corp. v. Stokes & Smith Co., 329 U.S. 637 (1947), the Supreme Court applied a rule of reason analysis to a grantback provision in an exclusive license agreement.
Non-exclusive grantbacks are, everything else being equal, much less likely to raise competition concerns. In analyzing grantbacks, courts also look at a number of other factors, including: (i) whether the parties are competitors, (ii) the parties’ market power, (iii) the effect of the grantbank on R&D incentives, (iv) the grantback’s duration, (v) whether the grantbank extends to inventions which would not infringe the licensed patent(s); and (vi) whether the grantback permits sub-licenses. Patentees’ market power, long duration grantbacks, grantbacks that extend beyond the licensed patent(s), and grantbacks that prevent any sub-licenses are – again, everything else being equal – potentially more anti-competitive than grantbacks lacking these features or provisions.
So in closing: patent grantbacks can raise competitive concerns. In most cases, at least some back-of-the-envelope sort of analysis is warranted to make sure that a grantback does not violate any antitrust law. In some cases, a more in-depth analysis may be required.