Exploring Variations in Patent Licensing Practices Across Industries

Patent licensing is rarely a one-size-fits-all arrangement. The way a pharmaceutical company licenses a blockbuster drug molecule looks nothing like how two semiconductor firms exchange technology rights, or how a university commercialises a research breakthrough. Each industry has developed its own licensing customs, shaped by the nature of its technology, the pace of innovation, the structure of competition, and the regulatory environment in which it operates. For law and IP management students in India, understanding these variations is not just academic – it is essential for advising clients, structuring deals, and navigating a rapidly evolving commercial landscape governed by the Patents Act, 1970 and India’s TRIPS obligations.

What patent licensing actually means 🔗

A patent confers on its holder the right to exclude others from making, using, or selling the patented invention for up to 20 years from the date of filing. Licensing does not transfer ownership of the patent – the patentee retains title – but it grants a third party (the licensee) defined rights to exploit the invention in exchange for consideration, usually royalties or a lump-sum fee. As patent law recognises, owners may license to quickly monetise an invention, bring it to market more efficiently, or reduce the capital needed to commercialise it at scale. The particular form that license takes, however, depends heavily on the industry context.

The three foundational license types 🔗

Exclusive licenses 🔗

An exclusive license grants a single licensee the sole right to practise the invention. Critically, the licensor is also restricted from independently practising or licensing to anyone else during the license term. Because the exclusivity locks competitors out entirely, exclusive licenses typically command higher royalties and more detailed commercialisation obligations. Regulators and government labs that issue exclusive licenses often require the licensee to submit a commercialisation plan demonstrating that exclusivity is warranted. A compromise position – the limited exclusive license – restricts exclusivity to a particular field of use, geographic territory, or time period, allowing a rights holder to issue separate exclusive licenses across different markets for the same patent.

Non-exclusive licenses 🔗

A non-exclusive license permits the licensee to practise the invention while the patentee retains the right to grant identical licenses to as many other parties as the market will support. The non-exclusive licensor may freely license others, or may even tolerate infringers, without violating the licensee’s rights. In exchange for this reduced protection, the licensee typically pays a lower royalty. Non-exclusive licenses generate broader income streams and are the dominant model wherever wide diffusion of a technology is commercially desirable – for instance, in consumer electronics and software platforms. They are also the standard vehicle for licensing Standard Essential Patents (SEPs), discussed further below.

Cross-licenses 🔗

A cross-licensing agreement is a contract where two or more parties each grant the other rights to their respective patents. This arrangement typically arises when both sides hold patents covering different but complementary aspects of a product, and each needs freedom to operate without risking an infringement suit from the other. The term “cross-licensing” implies that no money changes hands, though in practice, when one party brings a larger or more valuable portfolio, a balancing royalty is common. Cross-licensing functions, in effect, as “patents as trading cards” – the dominant use of large corporate patent portfolios in industry today. Notably, this model is ineffective against non-practising entities (NPEs or “patent trolls”) because they have no operational patents to offer in return.

Industry-specific variations in licensing practice 🔗

Pharmaceuticals: access versus exclusivity 🔗

No sector demonstrates the tension in patent licensing more starkly than pharmaceuticals. Exclusive licenses are the norm for newly developed drug molecules because the enormous R&D investment – often running into billions of rupees or dollars – can only be recouped through market exclusivity. In India, however, this dynamic is complicated by the unique features of the Patents Act, 1970, as amended in 2005 to comply with TRIPS. Section 3(d) bars the grant of patents for incremental modifications of known substances unless they demonstrate significantly enhanced efficacy – a provision specifically designed to prevent “evergreening,” the practice of extending patent life through minor tweaks to an existing formulation.

Beyond voluntary licensing, India’s patent law provides for compulsory licensing under Section 84, which allows any person to apply for a compulsory license three years after a patent is granted if: the public’s reasonable requirements have not been satisfied; the patented invention is not available at a reasonably affordable price; or the invention is not being worked in Indian territory. India’s first compulsory license was issued in 2012, when the Controller General granted Natco Pharma the right to manufacture Bayer’s anticancer drug Nexavar (sorafenib) at a royalty of 6% of net sales – a landmark ruling that reshaped global discussions on pharmaceutical patent policy. The threat of compulsory licensing itself incentivises voluntary licensing negotiations, a strategic dynamic that IP counsel must understand.

Universities and research institutions lacking manufacturing capacity routinely use patents as vehicles for technology transfer in this sector, licensing product or process rights to established manufacturers in return for royalties that fund further research.

Semiconductors and electronics: cross-licensing as the default 🔗

The semiconductor and consumer electronics industries are characterised by densely overlapping patent portfolios. A single smartphone may implement thousands of patented technologies across processors, displays, communications protocols, and software. In this environment, bilateral cross-licensing between major firms is effectively the operating standard. Companies such as Qualcomm, Samsung, Ericsson, and Nokia hold portfolios running into tens of thousands of patents, and most large-scale disputes are resolved through cross-license negotiations rather than litigation. Firms that do not hold substantial portfolios of their own are at a structural disadvantage in these negotiations, since they cannot offer comparable rights in return and must therefore pay cash royalties.

Telecommunications and standard essential patents 🔗

The telecommunications industry has generated one of the most complex licensing ecosystems in IP law – that of Standard Essential Patents (SEPs). A SEP is a patent that covers technology that is indispensable for implementing an industry-adopted standard, such as 4G LTE, 5G, Wi-Fi (IEEE 802.11), or USB. According to WIPO, Standards Development Organisations (SDOs) such as IEEE, ISO, and ETSI require members who contribute technology to a standard to declare any patents they believe are essential, and to commit to licensing those patents on FRAND terms – Fair, Reasonable, and Non-Discriminatory.

The FRAND commitment is a non-exclusive licensing obligation: the SEP holder cannot refuse to license a willing implementer, and cannot discriminate between similarly situated licensees on price. Patent pools have emerged as an efficient mechanism in this space – multiple SEP holders aggregate their rights into a single pool, offering implementers a one-stop licensing shop at a consolidated royalty rate, with essentiality evaluated by independent experts. Well-known pools include Avanci (cellular SEPs for the automotive industry) and Sisvel (Wi-Fi and video streaming). However, patent pools are not without controversy – overdeclaration (asserting non-essential patents as essential) and royalty stacking (cumulative royalties across multiple pools) can inflate costs that are ultimately passed on to consumers.

Biotechnology: field-of-use and sublicensing structures 🔗

Biotechnology licensing frequently involves inventions with applications across multiple industries – a gene-editing tool might be relevant to agriculture, therapeutics, diagnostics, and industrial enzymes simultaneously. To capture value across all these markets without surrendering exclusivity in any one of them, biotech licensors routinely use field-of-use licenses – exclusive licenses confined to a defined application area. A university may, for example, grant an exclusive field-of-use license to a pharmaceutical firm for therapeutic applications of a platform technology, while separately licensing a second company for agricultural uses.

Sublicensing is another common feature in biotech deals, particularly where the primary licensee needs to engage third-party manufacturers or distribute through subsidiaries. A sublicense must be consistent with the terms of the underlying license agreement – the sublicensee’s rights cannot exceed those of the original licensee. Sublicense provisions in biotech agreements are therefore drafted with careful attention to maintaining the licensor’s quality controls and ensuring that milestone payments flow back appropriately.

Factors that shape licensing choices across industries 🔗

Several variables determine which licensing model a patentee or licensee will prefer in any given deal. The nature of the technology matters enormously: a discrete, standalone invention in a niche market suits exclusive licensing, while a platform technology with broad applicability favours non-exclusive or field-of-use structures. Market competition drives cross-licensing in oligopolistic industries like semiconductors and telecommunications, where the cost of infringement litigation dwarfs the cost of a mutual license. Previous relationships between the parties – whether they have collaborated before, whether there is existing litigation – shape both the tone and the structure of negotiations.

Royalty structures also vary by industry. Some agreements specify a running royalty as a percentage of net sales; others set a fixed per-unit fee, a lump-sum payment, or milestone payments tied to development and commercialisation events. In pharmaceutical licensing particularly, milestone payments are common given the speculative nature of drug development, allowing the licensor to share in upside that materialises only if the product reaches clinical or commercial benchmarks.

Key contractual elements every licensing agreement must address 🔗

Whatever the industry, a well-structured patent license agreement must address certain core elements. The grant clause defines the scope of rights conveyed – whether exclusive or non-exclusive, the territory, the field of use, and the duration. The consideration clause specifies the royalty rate, payment schedule, and minimum annual royalty if applicable. Reporting and audit rights allow the licensor to verify that royalties are being calculated correctly. Sublicensing provisions clarify whether and on what terms the licensee may pass rights downstream. Finally, termination clauses – including provisions allowing a licensor to convert an exclusive license to a non-exclusive one if commercialisation milestones are missed – protect the patentee’s interest in ensuring the technology actually reaches the market.

In India specifically, Section 83 of the Patents Act underscores that patents should be worked on a commercial scale in Indian territory and that their benefits should be available to the public at reasonably affordable prices. This statutory backdrop means that Indian licensing agreements, particularly in pharmaceuticals and agriculture, must be structured with these public-interest obligations in mind – a consideration that does not feature as prominently in purely commercial markets like the United States or Europe.

What do you think? Given that compulsory licensing in India has primarily been invoked in the pharmaceutical sector, should a similar mechanism be considered for other critical industries – such as clean energy technology or agricultural biotechnology – where access and affordability are equally pressing concerns? And as cross-licensing becomes standard practice in the semiconductor industry, what risks does this create for smaller Indian technology startups that lack the patent portfolios needed to negotiate on equal terms with global majors?

References

1. https://ipindia.gov.in/patents.htm
2. https://www.tuckerellis.com/ip-tip-of-the-month-blog/patent-licensing-a-brief-summary/
3. https://www.oblon.com/publications/licensing-patents-and-trade-secrets
4. https://techlinkcenter.org/news/exclusive-non-exclusive-patent-license-agreement/
5. https://en.wikipedia.org/wiki/Cross-licensing
6. https://blueironip.com/how-patent-licensing-works/
7. https://pmc.ncbi.nlm.nih.gov/articles/PMC6044128/
8. https://www.lexology.com/library/detail.aspx?g=1b13bcbb-27b9-4e51-a152-6abc53eb6f18
9. https://www.wipo.int/en/web/patents/topics/sep
10. https://lesi.org/article-of-the-month/overview-of-seps-frand-licensing-and-patent-pools/
11. https://www.haynesboone.com/news/publications/what-are-standard-essential-patents
12. https://www.acc.com/resource-library/patent-licensing-considerations-united-states
13. https://www.upcounsel.com/intellectual-property-licensing