A patent is a 20-year right to exclude—and nothing more. It gives the owner no customer, factory, or dollar of revenue. Licensing is how you convert that right into cash: you grant someone else permission to make, use, or sell the invention and take a cut. Done well, a license creates value neither party could capture alone. Done poorly, it gives away the crown jewels for a pittance, traps you with a partner who sits on your invention, or—because of Supreme Court cases most inventors have never heard of—silently renders part of your royalty stream uncollectible. This checklist structures the term sheet that anchors the deal. For the full arc, pair it with how to license your patent: from valuation to term sheet.

Phase 1 — Threshold assessment: should you license at all?

  • Commercial relevance: does the patent cover technology companies actually want to use? (The examiner asked whether it's new; the market asks whether anyone will pay.)
  • Claim scope: read the claims (not the glossy specification) with a skeptic's eye—broad claims capturing a fundamental aspect are worth far more than narrow claims a competitor sidesteps with a trivial redesign.
  • Patent strength: a patent likely to survive a validity challenge commands higher royalties; a clean prosecution history is an asset you can charge for.
  • Remaining term: confirm term and maintenance-fee status via USPTO Patent Center—a royalty stream cannot legally outlive the patent (see Brulotte/Kimble, Phase 6).

Phase 2 — Value the patent (set a defensible range)

  • Cost approach: what would it cost the licensee to design around or independently develop the technology? Sets a useful ceiling.
  • Market approach: compare to genuinely comparable licenses (royalty-rate databases, LES surveys), adjusting for scope, term, field, and exclusivity (ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860 (Fed. Cir. 2010)).
  • Income approach: model the share of extra profit the licensee earns because it has the technology versus the next-best alternative.
  • Triangulate the three into a range with reasoning—walk in with a band, not a single magic number.
  • Use the Georgia-Pacific fifteen factors as a negotiation checklist (the hypothetical-negotiation factors a court uses are the same factors that set a fair royalty across a table)—Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970).
  • Treat the dead 25% rule only as a back-of-envelope sanity check, never as evidence (Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011)).

Phase 3 — Define the grant

  • Exclusivity: choose exclusive, sole, or non-exclusive—and price accordingly (an exclusive licensee may need standing to sue and pays for the privilege of no competitors).
  • Field of use: restrict the grant to defined fields (e.g., marine vs. pipeline) so you can license other fields to others.
  • Territory: define geographic scope.
  • Licensed patents: list patents, applications, and—carefully—any improvements, continuations, or foreign counterparts to be included.
  • Sublicensing: state whether sublicenses are allowed, on what terms, and how sublicense revenue is shared.
  • Reserved rights: reserve any rights the licensor keeps (e.g., to practice, to license for research).
  • Confirm whether the patent is subject to Bayh-Dole (federally funded) or FRAND (standard-essential) obligations that constrain the grant.

Why the grant is the heart of the deal. Exclusivity is the single biggest price lever. An exclusive license removes all competitors (including, unless carefully reserved, the licensor itself) and may give the licensee standing to sue infringers in its own name—so it commands a premium and demands diligence obligations in return. A non-exclusive license lets the licensor monetize the same patent many times but offers each licensee less. Field-of-use and territorial restrictions let you slice one patent into several revenue streams (marine to one company, pipeline to another, Europe to a third)—but draw the field boundaries with an engineer's precision, because a vague field definition is litigated later as either a loophole or an overreach. And decide the fate of improvements deliberately: an unbounded grant-back of the licensee's future improvements can be both commercially unfair and a patent-misuse problem.

Phase 4 — Design the royalty architecture

  • Upfront / lump sum: a signing payment that de-risks the deal for the licensor.
  • Running royalty: define the rate and the royalty base (apportion to the value of the patented feature, not the whole product—Georgia-Pacific factor 13).
  • Minimum annual royalties / milestones: protect against a licensee who takes an exclusive grant and then sits on the technology.
  • Most-favored-licensee clauses (and their administrative cost) if appropriate.
  • Specify reporting frequency, currency, and how "net sales" is defined (deductions are heavily negotiated).
  • Stack royalty payments only within the patent term—see Phase 6.

Phase 5 — Build the protective machinery

  • Audit rights: the right to inspect the licensee's books, with a cost-shifting trigger if the audit finds an underpayment over a threshold.
  • Representations and warranties: ownership, right to grant, and (carefully scoped) non-infringement—and disclaimers of any broader warranty.
  • Indemnification: who bears third-party infringement claims, and caps.
  • Patent prosecution and maintenance: who pays maintenance fees and controls prosecution of pending applications.
  • Enforcement: who has the right and obligation to sue infringers, who controls litigation, and how recoveries are split.
  • Marking: require the licensee to mark covered products (an unmarked licensee product can destroy the patentee's constructive notice—see patent marking compliance checklist).
  • Term, termination, and survival: termination for breach, bankruptcy, and challenge; which obligations survive.

Phase 6 — Avoid the doctrinal landmines

  • No post-expiration royalties: royalties may not be collected for use after the patent expires (Brulotte v. Thys Co., 379 U.S. 29 (1964); reaffirmed in Kimble v. Marvel Entertainment, LLC, 576 U.S. 446 (2015)). Structure deferred payments, hybrid patent/know-how royalties, or step-downs to avoid an unenforceable tail.
  • Licensee's right to challenge validity: a licensee cannot be contractually barred from challenging the patent (Lear, Inc. v. Adkins, 395 U.S. 653 (1969)); use a higher royalty during a challenge or termination-on-challenge clauses instead of a flat no-challenge bar.
  • Patent exhaustion: an authorized sale exhausts the patent rights in that article—account for downstream-use restrictions accordingly.
  • Patent misuse / antitrust: avoid tying, illegal grant-backs, and overbroad field/territorial restraints that could render the patent unenforceable or expose the licensor to antitrust liability.

Why these landmines are silent. Each of these doctrines can quietly void a royalty stream a licensor thought was airtight, and none of them shows up until a dispute. Brulotte/Kimble is the most common surprise: a deal that ties royalties to a basket of patents and pays the same rate after the last one expires is unenforceable as to the post-expiration period—structure step-downs, separately stated know-how royalties, or amortized lump sums instead. Lear means a no-challenge clause is not worth the paper it is printed on; the workable substitutes are a challenge-triggered royalty bump and a right to terminate if the licensee sues. Exhaustion means you cannot use a license to control conduct downstream of an authorized sale. And misuse can make the entire patent unenforceable against everyone until the misuse is purged—a far worse outcome than a merely unfavorable license. Have counsel pressure-test the term sheet against all four before signing.

Phase 7 — Tailor to special licensors

  • University / Bayh-Dole: account for government march-in rights, the U.S.-manufacturing preference, and the institution's reserved research rights.
  • Standard-essential patents: if the patent is essential to a standard, license on FRAND terms (see standard-essential patents and FRAND licensing in 5G and IoT).

Phase 8 — Paper and close

  • Reduce the term sheet to a definitive license; confirm signatories have authority.
  • Record the assignment/license with the USPTO where appropriate (recording affects priority against later purchasers).
  • Calendar all royalty-report, minimum-payment, audit, and maintenance-fee deadlines.

Common mistakes

  • Pricing off a single number instead of a defensible range.
  • Defining a rate but not the royalty base (apportionment is half the deal).
  • A naked no-challenge clause (unenforceable under Lear).
  • A royalty tail past expiration (uncollectible under Brulotte/Kimble).
  • An exclusive grant with no minimums or diligence milestones (a partner who shelves your invention).
  • Forgetting licensee marking obligations (and the resulting damages loss).

Primary authority

  • 35 U.S.C. §§ 154, 261, 271, 284 (rights, assignment, infringement, reasonable royalty).
  • Brulotte v. Thys Co., 379 U.S. 29 (1964); Kimble v. Marvel Entertainment, LLC, 576 U.S. 446 (2015); Lear, Inc. v. Adkins, 395 U.S. 653 (1969); Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970); ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860 (Fed. Cir. 2010); Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011).
  • USPTO Patent Center (term and assignment recording): https://patentcenter.uspto.gov. Fees and rates change—verify current amounts.

This checklist is educational, not legal advice. Consult qualified counsel before signing any license.

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