Patents, Licensing, Royalties, and Technology Transfer

Patents, licensing, royalties, and technology transfer is a procurement issue concerning intellectual-property rights and the terms under which protected technology is used, licensed, transferred, or developed. NATO procurement policy requires a solicitation and contract that involve IP development, licensing, or transfer to define the IP arrangements, including access, use, ownership, and licensing. See the NATO procurement policy.

In the Government of Canada, the same issue is a named procurement responsibility. Public Services and Procurement Canada (PSPC) lists "examine potential issues with patents, licensing, royalties and technology transfer" in its matrix of responsibilities between PSPC and clients for goods and services procurement.

How the four concepts fit together

• Patent: gives its owner rights over an invention.
• Licence: permits another party to use technology or patent rights, normally on specified terms. Canadian government guidance describes licensing as providing limited rights, usually for a fixed period (technology acquisition guidance).
• Royalty: compensation for licensed technology, generally based on the extent of the recipient's use (Government of Canada guidance on licensing).
• Technology transfer: the acquisition or disposition of technology rights through purchase, assignment, or licence.

The Canadian Intellectual Property Office notes that a patent owner may license a patent in exchange for royalties or transfer ownership for a lump-sum payment. Its page on why patents matter sets this out.

Background and foreground IP in contracts

Contracts separate intellectual property into two groups. Background IP is owned or controlled before the contract, or made available for performing it. NATO contract terms generally leave ownership of pre-existing IP with the party that owns it. Foreground IP is created during contract performance. NATO solicitations and contracts may assign its ownership, grant licences, or set other usage rights.

The result differs from one solicitation to the next. Some arrangements preserve supplier ownership and give the buyer a licence, while others assign foreground IP to the buyer. The solicitation documents are the authority on which approach applies.

Where the issue appears in Canadian federal procurement

For research and development and other technology work, the Innovation, Science and Economic Development Canada implementation guide on intellectual property arising under Crown procurement contracts sets the default position: the contractor owns the IP arising under the contract, subject to specified exceptions. Where the Crown takes ownership under an exception and grants a licence, that licence must be royalty-free in the circumstances the policy describes. In other circumstances the Crown may require royalties.

The federal Supply Manual also addresses patented products, licensed production arrangements, and royalties as issues to consider before using certain procurement authorities under the Patent Act and the Defence Production Act. It states that a royalty exceeding 5 percent requires Deputy Minister approval before the contract is entered into (Supply Manual).

What it means for a supplier bidding on Canadian public contracts

Read the IP clauses in each solicitation closely, because the obligation depends on the contract. Suppliers should be ready to:

• identify relevant patents, proprietary rights, and background IP;
• confirm they have the authority to grant the required licences or transfers;
• state any third-party licence, royalty, or usage restrictions;
• distinguish background IP from IP developed under the contract;
• grant the buyer the rights the contract specifies, or assign ownership where it requires assignment;
• provide the technical information needed to use, maintain, modify, or integrate the deliverable; and
• account for royalty costs and obtain any required approvals through the contracting authority.