Over the years many articles have been published describing common misconceptions in connection with intellectual property laws, yet rarely do these articles address a common misunderstanding about patent laws which will fundamentally alter many readers’ beliefs regarding the value of obtaining a patent. Some will be shocked to learn that obtaining a patent relating to an invention does not allow the patent holder to actually practice the covered invention.

On many occasions when the subject of patent law arises in conversation, it quickly becomes obvious that many believe that a United States patent gives its holder the right to practice whatever invention is covered by that patent. This belief is incorrect, and operating under this misconception could lead to significant liability. How can this be? Although counterintuitive, the answer is based on the fact that the right acquired under a patent grant is a right to exclude others from practicing an invention. The grant is not an affirmative right to actually make, use, sell or offer for sale the subject matter of the patent.

Carefully reading 35 U.S.C. §154 makes this point clear. That section provides that a patent grants “to the patentee . . . the right to exclude others from, making, using, offering for sale, or selling the invention . . . .” Yet a right to exclude others is very different from an affirmative right to use the device or other subject matter covered by the patent grant. For example, an inventor may have taken an already patented device, developed improvements to that device, and obtained a patent grant for the specific improvements. While the inventor of the improvements has the right to exclude others from using the improvements, the inventor still must have permission from the other patent holder to practice the underlying invention that was improved. Accordingly, to the extent that the new improved device is reliant on use of the previous (and still patented) device, the inventor of the improvement would be an infringer if they were to use the improvement without a proper license from the patent holder in the underlying invention.

Understanding this concept is of paramount importance. Many businesses (for example those in Silicon Valley) develop products by obtaining licenses to patented inventions. Although these licenses are often viewed as a right to practice the covered subject matter, the patent holder does not possess such rights, and therefore cannot grant a license to them. Therefore, licenses of this type generally function only as a covenant not to sue.  As a result, although a business may have obtained licenses to valid United States patents and incorporated them into its products, it still may find itself liable to third party intellectual property holders who have obtained superior rights to the rights that were licensed to the business. Unfortunately, many businesses have learned the hard way that they still can be liable for patent infringement notwithstanding the fact that valid patent licenses had been obtained for what was believed to be all of the intellectual property contained in a particular product offering.

While this problem can be addressed through appropriate indemnification provisions, such provisions are only as powerful as the checkbook that stands behind them. Many intellectual property and patent licensors are startup companies with limited capital, making broad indemnity provisions contained in a patent license potentially worthless. A single claim of patent infringement could result in the insolvency of a startup company, rendering the indemnity provision of little or no value, and leaving the patent licensee alone to defend against a claim of infringement, and pay any damages without recourse about the insolvent licensor.  Although there is no perfect solution to this predicament, it is obvious that this potential exposure should promote businesses and their counsel to conduct thorough due diligence both on the underlying subject matter of patent licenses being granted, as well as the financial solvency of any licensor.