Document type: Toolkit Practice area: Intellectual Property — Patents Jurisdiction: United States Last reviewed: 5 September 2026

Tool 1 — Grant clause, limitation form

2.1 Grant. Subject to the terms of this Agreement, Licensor hereby grants to Licensee, during the Term, a [non-exclusive / exclusive], royalty-bearing, non-transferable licence under the Licensed Patents: (a) to make and have made Licensed Products in the Manufacturing Territory; (b) to use, offer for sale, sell, and import Licensed Products in the Sale Territory; and (c) to practise the Licensed Methods in connection with Licensed Products, in each case solely for use in the Field, and for no other purpose. No licence, express or implied, is granted under the Licensed Patents for any product outside the definition of Licensed Products, for any use outside the Field, or in any territory other than as stated above.

2.2 Reservation. All rights not expressly granted in Section 2.1 are reserved to Licensor. Without limiting the foregoing, Licensor reserves the right to practise the Licensed Patents and to grant licences under them outside the Field.

Drafting note. The two features that matter are the word "solely" attaching the Field to the grant itself, and the express negation in the second sentence of 2.1. Compare the covenant form — "Licensee shall not sell Licensed Products for use outside the Field" — which creates a breach of contract claim and nothing more. Under General Talking Pictures, a sale outside a limited grant is unauthorized and does not exhaust; under Quanta, a sale that violates a mere covenant is authorized and does exhaust. This is the single most consequential drafting choice in the document.

Tool 2 — Field definitions that work

Bad: "automotive applications" · "consumer uses" · "the medical field" · "non-industrial purposes"

Better, by referent:

End product. "Field" means incorporation into passenger vehicles of gross vehicle weight rating not exceeding 8,500 pounds, as defined in [regulation], and excludes commercial vehicles, agricultural equipment, and marine applications.

Technical specification. "Field" means devices operating at frequencies below 6 GHz with a maximum transmit power not exceeding 200 mW.

Regulatory classification. "Field" means products regulated as Class I or Class II devices, and excludes products requiring premarket approval.

Customer type. "Field" means sale to entities holding a licence issued under [statute], and excludes sale to any other person.

Application, with a list. "Field" means the applications listed on Schedule 1.2, which may be amended only by written agreement, and no other application.

Drafting note. Apply the definition to the licensee's roadmap before signing. If a product two years out is ambiguous under the definition, the definition is wrong. Add the expansion mechanism at signature:

Field expansion. Licensee may, on written notice, add any Additional Field listed on Schedule 1.3 upon payment of the corresponding fee and application of the corresponding rate. Licensor grants Licensee a right of first negotiation, exercisable within [60] days of notice, with respect to any field not listed.

Tool 3 — Have-made rights

Have-made. The right to "have made" granted in Section 2.1(a) authorizes Licensee to engage third-party manufacturers to make Licensed Products exclusively for Licensee, provided that: (i) the Licensed Products are made to Licensee's designs and specifications; (ii) the Licensed Products are made for Licensee's account and are sold only by or on behalf of Licensee; (iii) Licensee obtains from each such manufacturer a written undertaking to use the Licensed Patents solely for the manufacture of Licensed Products for Licensee; and (iv) Licensee notifies Licensor of the identity of each such manufacturer within [30] days of engagement.

The have-made right is not a sublicence and confers on any manufacturer no right to make, use, or sell Licensed Products for its own account or for any person other than Licensee.

Drafting note. Omitting have-made rights from a licence to a fabless semiconductor company, a virtual pharmaceutical company, or a consumer hardware brand renders the licence commercially worthless. Licensors should grant them and bound them; licensees should not sign without them.

Tool 4 — Sublicensing, including the survival provision

Sublicensing. Licensee may grant sublicences within the Field, provided that: (i) each sublicence is in writing and consistent with this Agreement; (ii) each sublicensee is bound by the Field limitation, the reporting and audit obligations, and the confidentiality obligations; (iii) Licensee provides Licensor with a copy of each sublicence, with financial terms redacted, within [30] days; (iv) Licensee remains responsible for the performance of its sublicensees; and (v) Licensee pays Licensor [X]% of Sublicensing Income.

Survival. Upon termination or expiration of this Agreement for any reason other than a sublicensee's own breach, each sublicence granted in accordance with this Section shall survive and shall convert automatically into a direct licence from Licensor to the sublicensee on the terms of the sublicence, provided that Licensor's obligations to the sublicensee shall be no greater than Licensor's obligations to Licensee, and that the sublicensee is not then in material breach. Licensor shall execute such confirmatory documents as the sublicensee reasonably requests.

Drafting note. The survival provision is the one that saves a company. Without it, a sublicensee that has built a product line under a sublicence loses everything when a dispute it had no part in terminates the head licence. Licensors accept it more readily than licensees expect, because the alternative — sublicensees who will not take sublicences — is worse for the licensor too.

Tool 5 — Net sales

"Net Sales" means the gross amounts invoiced by Licensee and its Affiliates for the sale of Licensed Products to unaffiliated third parties, less only the following, in each case actually incurred and separately identified on the invoice or documented in Licensee's records: (a) sales, use, value-added, and excise taxes actually paid; (b) outbound freight and insurance separately invoiced to the customer; (c) trade, quantity, and cash discounts actually granted; (d) credits and allowances for returned, rejected, or defective Licensed Products; and (e) customs duties actually paid.

Net Sales shall not be reduced by: cost of goods sold; overhead or general and administrative expense; marketing, advertising, promotional, or sales expense; research and development; warranty or service cost; bad debt or uncollected amounts; commissions; currency conversion charges; or any amount payable to Licensee or any Affiliate of Licensee.

Transfers to an Affiliate for subsequent resale shall not constitute a sale; Net Sales shall be calculated on the Affiliate's sale to an unaffiliated third party. Non-cash consideration shall be valued at fair market value. Sales for less than fair market value, including sales in combination with other products at a bundled price, shall be valued at the average invoiced price for arm's-length sales of the Licensed Product during the same period.

Drafting note. Subsections in the negative list are not paranoia; each represents a deduction some licensee has actually attempted. The bundling provision is the one most often omitted and most often needed — a licensee that sells the licensed product only as part of a suite can otherwise allocate almost nothing to it.

Tool 6 — Royalty schedule with step-downs

SCHEDULE 4.1 — ROYALTIES

Licensee shall pay a running royalty on Net Sales of Licensed Products at the applicable rate below, determined by reference to which Licensed Patents have Valid Claims covering the Licensed Product in the country of sale at the time of sale:

Coverage Rate
A Valid Claim of any of the Core Patents (Schedule 1.1(a)) 4.0%
No Core Patent, but a Valid Claim of any Secondary Patent (Schedule 1.1(b)) 2.0%
No Valid Claim in the country of sale 0%

"Valid Claim" means a claim of an issued, unexpired patent that has not been held invalid or unenforceable by a decision from which no appeal has been or can be taken, and has not been disclaimed or abandoned.

Expiration schedule. The Core Patents expire as set out on Schedule 1.1(a); the rate shall step down automatically on each such date without further notice.

Know-how. Following expiration of the last Valid Claim, Licensee shall pay a royalty of [0.5]% on Net Sales for [three] years in consideration of the Licensed Know-How described in Schedule 1.4, which royalty is separately bargained for and is not consideration for any expired patent right.

Drafting note. The country-by-country, claim-by-claim structure is the Brulotte-safe way to build a portfolio royalty: the obligation is tied to actual coverage and falls away with it. The know-how tail is enforceable if — and only if — the know-how is real, is identified, and was separately negotiated. A boilerplate know-how recital attached to nothing will not save a post-expiration royalty.

Tool 7 — Stacking and minimums

Stacking. If Licensee is required to obtain a licence from a third party under patents that are necessarily infringed by the manufacture, use, or sale of a Licensed Product, Licensee may credit [50]% of the royalties actually paid to such third party against royalties otherwise payable hereunder, provided that the royalty payable to Licensor shall not in any period be reduced below [50]% of the amount that would otherwise be due.

Minimum annual royalty. Licensee shall pay a Minimum Annual Royalty of $[amount] for each Contract Year beginning with Contract Year [3], creditable against running royalties for the same Contract Year. If running royalties for a Contract Year exceed the Minimum, no additional payment is due.

Consequence of shortfall. If running royalties for any Contract Year are less than [75]% of the Minimum, Licensor may, on [60] days' written notice given within [90] days after delivery of the annual report, convert the licence from exclusive to non-exclusive as to the Field or any portion of it. Payment of the Minimum shall not preserve exclusivity where this Section applies.

Tool 8 — Audit clause

Records. Licensee shall maintain complete and accurate records sufficient to determine amounts payable, including units manufactured and sold by product, country, and customer type; gross invoiced amounts; each deduction taken, itemized; Net Sales; the rate applied; and Sublicensing Income. Records shall be retained for [three] years after the period to which they relate.

Audit. Licensor may, not more than once per calendar year, on [30] days' written notice, cause an independent certified public accountant selected by Licensor and reasonably acceptable to Licensee to examine such records at Licensee's premises during normal business hours, for any period ending not more than [three] years before the date of notice. The accountant shall be bound by confidentiality and shall report to Licensor only the amount of any discrepancy and its basis.

Cost. Licensor shall bear the cost of the audit, except that if the audit discloses an underpayment exceeding [five percent] of amounts due for the audited period, Licensee shall reimburse the reasonable cost of the audit and shall pay the underpayment together with interest at [the lesser of 1.5% per month and the maximum rate permitted by law] from the date each amount was due.

Sublicensees. Licensee shall include in each sublicence audit rights equivalent to those in this Section, exercisable by Licensee at Licensor's request and at Licensor's cost, and shall exercise them upon reasonable request.

Tool 9 — Marking

Marking. Licensee shall mark, and shall require its sublicensees and its have-made manufacturers to mark, all Licensed Products (or, where marking the product is impracticable, their packaging) in accordance with 35 U.S.C. § 287, either with the applicable patent numbers or with the word "Patent" and a freely accessible internet address that associates the Licensed Products with the applicable patent numbers.

Verification. Licensee shall furnish, on Licensor's request and not more than annually, samples or photographic evidence sufficient to verify compliance.

Indemnity. Licensee shall indemnify Licensor for any damages Licensor is unable to recover from a third-party infringer as a result of Licensee's failure to comply with this Section.

Drafting note. An unmarked licensee limits the licensor's damages against strangers to the licence. Most licensors never check. The verification right takes ten minutes a year to exercise and preserves the value of the entire portfolio.

Tool 10 — Improvements

"Improvement" means any invention, whether or not patentable, that cannot be practised without infringing a Valid Claim of the Licensed Patents, conceived or reduced to practice during the Term.

Ownership. Each Party shall own Improvements made solely by its personnel. Improvements made jointly shall be owned jointly, with each Party free to practise and license without accounting to the other, subject to Section [X].

Licensee Improvements. Licensee grants Licensor a non-exclusive, royalty-free, worldwide licence under Licensee Improvements, solely for use outside the Field, with the right to sublicense.

Licensor Improvements. Licensor Improvements that are dominated by the Licensed Patents are automatically included in the Licensed Patents at no additional consideration. Licensor grants Licensee a right of first negotiation with respect to any other improvement in the Field.

Exclusion. Nothing in this Section applies to any invention conceived independently of the Licensed Patents and without use of Licensor's Confidential Information.

Drafting note. Three guardrails: the narrow definition, the non-exclusive grant-back, and the independent development carve-out. An exclusive or assignment-form grant-back captures the licensee's own R&D and can support a misuse defence. The "solely for use outside the Field" limitation on the licensor's grant-back licence is what prevents the licensor from competing with the licensee using the licensee's own improvements.

Tool 11 — Enforcement and joinder

Notice. Each Party shall promptly notify the other of any infringement of the Licensed Patents in the Field of which it becomes aware.

First right. Licensor shall have the first right, but not the obligation, to enforce the Licensed Patents. If Licensor has not initiated proceedings or secured cessation within [90] days after notice, Licensee may do so in the Field at its own cost.

Joinder. Each Party shall, at the enforcing Party's request and cost, join as a party to the extent necessary to establish standing, and shall provide reasonable cooperation, including access to inventors, documents, and records.

Control and settlement. The enforcing Party shall control the proceedings, provided that no settlement that grants any right under the Licensed Patents outside the Field, or that admits or concedes the invalidity or unenforceability of any Licensed Patent, may be entered into without the other Party's prior written consent.

Recoveries. Recoveries shall be applied first to the enforcing Party's unreimbursed costs, then to the other Party's unreimbursed costs, and the balance shall be [allocated / treated as Net Sales and royalty-bearing].

Tool 12 — Exhaustion analysis worksheet

Run this for every licence, on both sides of the table.

A. Characterize the transaction

  1. Does title to the article pass to the transferee? □ Yes □ No
  2. Single payment approximating value? □ Yes □ No
  3. Term versus economic life of the article: ______
  4. Nominal purchase option at end of term? □ Yes □ No
  5. Who bears risk of loss, maintenance, obsolescence? ______
  6. Is a return obligation actually enforced? □ Yes □ No

If the transaction is a sale in substance, exhaustion applies regardless of the label.

B. Identify what the article embodies 7. Does the article have any reasonable non-infringing use? □ Yes □ No 8. Does it embody the essential features of the claimed invention? □ Yes □ No 9. List method claims practised when the article is used as intended: ______

If 7 is No and 8 is Yes, the sale exhausts the claims embodied, including method claims.

C. Test the limitation 10. Is the Field stated as a limitation on the grant? □ Yes □ No 11. Or as a covenant on the licensee's conduct? □ Yes □ No 12. Quote the operative words: ______

Only a limitation on the grant prevents exhaustion. A covenant yields contract damages and nothing more.

D. Test the restriction on purchasers 13. Are there restrictions imposed on buyers (single use, no resale, territory)? □ Yes □ No

After Impression Products, these are contract terms only. They bind the buyer who agreed and no one else, and confer no patent rights.

E. Foreign sales 14. Are there authorized sales outside the United States? □ Yes □ No

If Yes, U.S. patent rights in those articles are exhausted. Regional pricing must be protected by contract, distribution, trademark, regulatory, or service structure — not by patent.

F. Reserved claims 15. Are there claims directed to a different actor, not embodied in the article sold? ______ 16. Are they expressly reserved in the licence? □ Yes □ No

Per Helferich, distinct claims against different actors may survive — but only where expressly reserved.

G. Settlement covenants 17. Does any covenant not to sue extend to the counterparty's customers? □ Yes □ No 18. If so, what does that authorize, and what does it exhaust? ______

Per TransCore, an unconditional covenant not to sue operates as a licence and exhausts.

H. Conclusion

  • Claims exhausted by authorized sales under this licence: ______
  • Claims preserved, and the basis: ______
  • Is the royalty priced for the whole authorized chain? □ Yes □ No

Tool 13 — Covenant not to sue

Covenant. Licensor covenants not to sue Licensee, its Affiliates, or its direct or indirect customers, distributors, or end users, for infringement of the Covenanted Patents arising from the manufacture, use, sale, offer for sale, or importation of Covenanted Products within the Field.

Limits. This covenant extends only to the Covenanted Products and only within the Field. It is not a licence to any other product, is not a licence outside the Field, and confers no right to sublicense. Licensor expressly reserves all claims of the Covenanted Patents directed to [describe distinct actors or steps], which are not embodied in the Covenanted Products and are not affected by this covenant.

Drafting note. If you do not want the counterparty's sales to exhaust your rights, you must bound the covenant the way you would bound a licence. An unqualified covenant not to sue is a licence with a different name, and it exhausts.

Tool 14 — One-page licence summary

Prepare at signature. Circulate to finance, engineering, sales, and supply chain.

LICENCE SUMMARY — [Counterparty] / [Date]

What we can do: [make / have made / use / sell / import], in [Field], in [Territory]. What we cannot do: [the excluded fields, territories, products, in plain language]. Manufacturing: [in-house / contract manufacturers permitted, subject to notice]. Sublicensing: [permitted / prohibited / consent required]. Sublicences survive termination: [yes/no]. What we pay: [rate] of [base], due [frequency], reported by [date]. Minimum: [amount] from [year]. Rate changes on: [dates and new rates]. What we must report: [fields]. Audit: [frequency, look-back, cost shift trigger]. Marking: [required format]. Term ends: [date or event]. Terminable by us on: [notice]. By them if: [triggers]. Watch out for: [the two or three provisions most likely to be breached inadvertently]. Owner: [name and role]. Escalate to: [name].

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