Licensing your patent in the UK

Simply owning a patent doesn't guarantee income. To commercialise your patent, you must market the invention, sell the patent outright, or license its use. While selling your patent outright offers quick cash, licensing is typically more profitable long term.

What does it mean to license a patent?

Licensing your patent allows you to retain ownership while granting others the right to use, produce, or sell your invention under agreed terms. In return, you typically receive royalties, upfront payments, or profit-sharing from the licensee.

What are patent licensing agreements in the UK?

A patent licensing agreement is a legal contract that gives someone else (the licensee) specific rights over your invention. Different types of licensing agreements exist.

Exclusive licence

An exclusive licence gives one licensee sole rights to your invention in a specific market or territory. No one else, including you, can use or sell the invention there where the licence is in force. An exclusive licence often brings higher royalties and stronger partners but relies heavily on the licensee's performance.

Non-exclusive licence

A non-exclusive licence lets you license your invention to multiple parties, helping you reach broader markets. It's flexible and diversifies income but can lead to lower royalties, competition between licensees, and more management effort.

Licence of right

A licence of right means that you, as the patent holder, have agreed to make your patent available for licensing to anyone who requests it. This type of licensing reduces renewal costs and attracts more licensees but limits exclusivity and may increase competition. You can ask the UK Intellectual Property Office (IPO) to endorse your patent with a licence of right.

Standard Essential Patents licences (SEPs)

These licences cover patents that protect technology essential to a recognised industry standard (for example 5G, Wi-Fi and similar). Such patents must be licensed under fair, reasonable, and non-discriminatory terms to ensure that all businesses can access and use the standardised technology. Read more in the ICO's guidance on SEPs.

How to license a patent for passive income

First, assess whether your invention has commercial value. Research the market, target industries, and find potential licensees like manufacturers or distributors. Attend trade shows, network, or advertise your patent. Decide if a licence of right fits your goals.

Then, make sure that your patent is granted and up-to-date. With the legal groundwork in place, decide on your strategy. Choose between an exclusive or non-exclusive licence and set terms like duration, royalties, market scope, and other conditions that suit your business.

Negotiate a patent licensing agreement in the UK

A typical licensing agreement covers:

• scope - exclusive or non-exclusive, territories, and industries covered
• duration - length of the agreement and renewal/termination terms
• royalties - payment structure, frequency, and minimum thresholds
• rights - sub-licensing permissions and usage limitations
• responsibilities - duties of both the patent owner and licensee
• ownership - patent owner retains intellectual property rights
• dispute resolution - mediation, arbitration, or legal jurisdiction for conflicts
• liability - indemnification clauses and risk protection
• termination - conditions for ending the agreement and consequences

It can help to involve a patent attorney to negotiate and outline any terms, and ensure your agreement protects your intellectual property. You can also download a skeleton licence from the IPO (PDF, 141K) to explore clauses you would typically expect to see in an IP licence agreement.

Once agreed, formalise and register the licence with the IPO.

After this, it's good practice to monitor the agreement to track compliance, royalty payments, and performance, addressing disputes or changes as needed. If market conditions shift, consider renegotiating or expanding the licence.

If licensing isn't suitable, selling your patent outright can offer a one-time financial boost by transferring patent ownership to the buyer. Alternatively, if you're interested in using someone else's patent, you can negotiate to buy it outright or secure a licence for its use.