Sublicense

A patent sublicense is a license granted by a licensee (the sublicensor) to a third party (the sublicensee) to practice the patent. The sublicensor does not own the patent — it holds a license from the patent owner — and it passes some or all of its licensed rights to the sublicensee. The sublicense creates a three-tier structure: patent owner → licensee/sublicensor → sublicensee. The sublicensee typically cannot have greater rights than the licensee — they can only receive rights that the licensee actually has under its license from the patent owner.

A patent licensee does NOT have an automatic right to sublicense — the right to sublicense must be expressly granted in the license agreement, or at minimum clearly implied from the license's terms. The default rule: absent an express grant of sublicensing rights, a licensee cannot sublicense. WIAV SOLUTIONS v. MOTOROLA (Fed. Cir. 2010): addressed the scope of sublicensing rights in a complex MPEG-LA patent pool — a sublicensee's rights are limited to what the sublicensor actually received from the patent owner; a licensee cannot grant a sublicensee rights greater than those the licensee itself holds. KEY QUESTIONS when a license grants sublicensing rights: (1) Are the sublicensing rights limited to the same field of use, territory, or term as the original license? (2) Can the sublicensee further sublicense to sub-sublicensees? (3) Does the original patent owner's consent remain necessary for each sublicense? (4) Do royalties from sublicenses flow back to the original patent owner?

SUBLICENSE: a contractual grant of rights from a licensee to a third party; requires an express (or clearly implied) right in the original license; creates contractual obligations between the sublicensor and sublicensee; the sublicensee has rights because it received a contractual grant. PATENT EXHAUSTION: a legal doctrine that operates automatically upon the authorized sale of a patented product — the patent owner's rights are exhausted in that specific sold product unit; all downstream purchasers and users have an implied license to use, resell, or repair the product without further permission from the patent owner; no contract is required. KEY DISTINCTION: exhaustion depends on an authorized first sale; sublicensing depends on express contractual authorization. A sublicensee has broader rights (can make, use, and sell) while an exhaustion beneficiary has only the right to use and resell the specific product unit they acquired. Quanta Computer v. LG Electronics (S.Ct. 2008): exhaustion extends to components sold by an authorized manufacturer if substantially all uses of the component practice the patent — this is distinct from and does not require a sublicense.

A sublicensee receives rights no greater than those the sublicensor itself holds from the patent owner. The sublicense cannot expand the original license: (1) SCOPE — if the original license is limited to a specific field of use (e.g., medical devices), the sublicense cannot grant rights in a different field (e.g., consumer electronics) without the patent owner's consent; (2) TERRITORY — a license limited to the U.S. cannot create a sublicense for Germany without the patent owner's consent; (3) TERM — the sublicense cannot outlast the original license; (4) EXCLUSIVITY — if the original license is non-exclusive, the sublicensor cannot grant an exclusive sublicense (which would effectively expand the original scope); (5) FURTHER SUBLICENSING — the sublicensee cannot sub-sublicense unless the sublicense expressly permits further sublicensing. Under WiAV Solutions, the court examines what rights the sublicensor actually received and limits the sublicensee's rights accordingly.

When the original license between the patent owner and the licensee/sublicensor is terminated, the fate of outstanding sublicenses depends on the terms of the original license and sublicense agreements. GENERAL RULE: when the original license terminates, the sublicense terminates too — because the sublicensor no longer has rights to pass to the sublicensee (nemo dat — one cannot give more than they have). EXCEPTIONS: (1) DIRECT LICENSE FROM PATENT OWNER — the sublicense agreement may provide that upon termination of the main license, the sublicensee can elect to take a direct license from the patent owner; (2) TERMINATION CARVE-OUT — the original license may specify that sublicenses granted before termination survive the main license termination, protecting sublicensees who relied on the sublicense; (3) BANKRUPTCY — under 11 U.S.C. § 365(n), if a licensor/sublicensor files for bankruptcy, the licensee/sublicensee may elect to retain its rights under the license (treating it as not rejected in the bankruptcy) by continuing to pay royalties. DRAFTING: sublicense agreements should always address what happens upon termination of the master license and whether direct-license rights can be elected by the sublicensee.