BK Attorney Cautions Organizations That Assign Patents To IP Holding Companies

Brooks Kushman PC Shareholder Christopher C. Smith recently published an article identifying the potential problems that can arise when a corporate organization transfers ownership of its patents to an intellectual property holding company. The article on the Association of Corporate Counsel’s Quick Counsel website describes best practices to ensure that organizations are able to fully enforce their patent rights by re-transferring exclusive rights from the holding company to the organization’s operating entity.

In large corporate organizations, it is common for patents and other intellectual property assets to be assigned to a specialized holding company. Such holding companies often are non-practicing entities with the sole function of owning and managing the organization’s intellectual property. Smith warns, however, that if only the holding company has standing to enforce a patent, any damages ultimately awarded may be limited to a reasonable royalty, often a smaller award than lost profits.

To avoid this adverse result, it is critical that the holding company provide an exclusive license back to the operating entity so that the operating entity has standing to sue under the patents and pursue the full range of available remedies. Organizations should consider adopting a policy including (1) regular audits of the portfolio to ensure that all assigned patents have been licensed, (2) preparation of an exclusive license form that uses the correct exclusive license language set forth in Federal Circuit precedent, and (3) a process that merges the assignment and license processes together to ensure that patents are licensed at the same time they are assigned.

Smith’s complete article, “A Spoonful Of Licensing Helps The Medicine Go Down: Avoiding Standing Problems Between Related Entities In Patent Cases,” is available on the Association of Corporate Counsel’s website.