The preliminary objective of this research is to analyze the legal and professional impact of patent transfer within a typical commercial setting. In the process the researcher provides a basic understanding about the patent license, the rights belongs to patent owner and how the patent owner can use his/her rights under the legal setting. - By Hansa Edirisinghe

1. LEGAL APPLICATIONS IN TECHNOLOGY
MSc IT Assignment 2013
Analyze the legal and professional impact of
Transfer of Patent license within a typical
commercial setting
Hansa K. Edirisinghe
BSc (Hons) University of Portsmouth, UK
MSc IT - Cardiff Metropolitan University, UK
10th February 2013
The preliminary objective of this research is to analyze the legal and professional impact of patent
transfer within a typical commercial setting. In the process the researcher provides a basic
understanding about the patent license, the rights belongs to patent owner and how the patent
owner can use his/her rights under the legal setting.
i

2. Abstract
The preliminary objective of this research is to analyze the legal and professional impact of
patent transfer within a typical commercial setting. In the process the researcher provides a
basic understanding about the patent license, the rights belongs to patent owner and how the
patent owner can use his/her rights under the legal setting. This is followed by the financial
benefits which could gain by the patent owner and transferee. Apart from that, the law of the
patent transfer and analysis of how the law protects the invention and inventor was discussed.
The report also focuses on to the analysis of the limitation of law and terms and conditions of
the transfer agreements.
The acquisition of Patent License in Sri Lanka is discussed while providing examples in the
local context. The concept of typical commercial setting; Patent ownership; The impact of
patients on the country’s typical commercial setting; Patent acquisition among residents and
nonresidents of Sri Lanka; The law of patent transfer; The potential of legal and professional
impacts; Law behind transfer of Patent ownership; Patent transfer types for commercial
purposes; Royalty basis; Lump-sum sales price; Startup Companies; and Work-for-Hire were
also covered in the report.
The overall report analyzes/evaluates the above key points of legal and professional impact
of patent transfer while providing evidence to how it could impact within a typical
commercial setting.
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3. Table of Contents
1.0
Introduction .................................................................................................................... 1
2.0
Literature review ............................................................................................................ 2
2.1
Patent ownership ........................................................................................................ 3
2.2
The concept of typical commercial setting ................................................................ 3
2.2.1
The impact of patients on the country’s typical commercial setting .................. 4
2.3
Formulating the research problem.............................................................................. 4
2.4
Objectives ................................................................................................................... 4
2.5
Research methodology ............................................................................................... 5
2.6
Scope and limitations ................................................................................................. 5
2.7
Significance of the study ............................................................................................ 5
3.0
The potential of legal and professional impacts ............................................................ 6
4.0
Analysis of the legal and professional impact ............................................................... 7
4.1
Law behind transfer Patent ownership transfer .......................................................... 7
4.2
Patent transfer types for commercial purposes .......................................................... 7
4.2.1
Patent Licensing .................................................................................................. 8
4.2.1.1 Royalty basis ................................................................................................... 8
4.2.2
Patent Assignment .............................................................................................. 8
4.2.2.1 Lump-sum sales price...................................................................................... 8
4.2.2.2 Startup Companies .......................................................................................... 9
4.2.2.3 Work-for-Hire ................................................................................................. 9
5.0
Conclusion ................................................................................................................... 11
6.0
Bibliography ................................................................................................................ 12
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4. 1.0
Introduction
Emerging technology is changing the typical life style of the people. The world is in a hunger
of new inventions. Although the invention has its scientific value a Patent License can give it
a higher and stable commercial value. This is due to the fact that a patent license can make a
product or technology unique to a particular person. It gives a monopoly of making, using,
selling or distributing the product or technology to the patent owner. The owner can take
legal actions if someone goes against the rules pertaining to intellectual property rights.
Patents are the intellectual property rights granted by the state for inventions. An invention
means a creation of a new product or a process that has not been known to the public or has
not been in existence in nature. (Sandirigama, 2008)
The changing of ownership of the patent is known as Patent license transferring. According
to the records of United States Patent and Trademark Office there are different types of
patent conveyance are recorded for both commercial purposes and trust factor. The types
such as “Licensing” and “Assignment” are more important when it comes to commercial
purposes.
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5. 2.0
Literature review
According to the Sri Lankan law the duration of the patent is twenty years from the filing
date of application. The patent law comes under Intellectual Property Act NO.36 of 2003.
According to the statistics of National Intellectual property office (NIPO) of Sri Lanka the
number of patents granted within the country reflect an increasing trend.
Figure 2.1 Acquisition of Patent License in Sri Lanka
500
400
300
PATENTS
200
100
0
1995
1997
1999
2001
2003
2005
2007
2009
2011
Source: (National Intellectual Property Office of Sri Lanka, 2012)
Figure 2.1 shows the total number of patent license granted for both residence and nonresidence.
Although there is a parliament act passed in Sri Lanka for intellectual property general public
is not very much aware of these rules. Therefore frequent losses have been recorded in the
history. As a moderately self sufficient country, Sri Lanka has many natural resources than
other countries. But due to the unawareness the importance of patent ownerships certain rare
plants unique to Sri Lanka used to produce medicines goes to foreign companies without any
benefit to the country. Those foreign companies earn billions of dollars by using the plants
unique to Sri Lanka while Sri Lanka is deprived of any commercial advantage.
Acceding to a newspaper article in Daily News on 21 May 2010 the patent ownership of a Sri
Lankan plant which is known as “Kotala Himbutu” was obtained by a Japanese company
“Fuji Films”. This plant is unique to Sri Lanka and the Sri Lankan Ayurvedic doctors have
been using this item for their medicines from the ancient times.
On the other extreme, Dr. Sena Yaddehige owns the patient worldwide for the automotive
sensor business developed by him. It sets an example for any entrepreneur in Sri Lanka the
value of the patient ownership.
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6. 2.1
Patent ownership
Patent ownership could be granted as an individual or as a group. If it is a join invention, the
ownership goes to all the joining parties and the all the decisions should be taken with the
agreement of all group members. Even in join research the ownership could be transfer to
any external party or an internal member under certain conditions.
When transferring the patent ownership, the person who obtains the patent is called the
assignor and the person who receives the assignment is called the assignee.
2.2
The concept of typical commercial setting
Commerce is the entire system of an economy that constitutes an environment for business.
There are few critical external environmental factors in any commercial setting that influence
the existence of the firm. This includes Political, Environmental, Social, Technological,
Ecological, and Legal influences. The needs and wants of people have been changed
drastically during the recent past primarily due to the impact of rapidly changing technology.
Therefore market has become very volatile though everyone is looking for sustainability and
a sound financial stability. The country’s commercial background is depending on the
sustainability of the firms and financials of people.
The term “commercial organization” commonly refers to a group or groups that constitute
specific set of skills, priorities, strategies, and resources. The obvious and ultimate objective
of a commercial organization is usually to make a profit for the owners and its shareholders.
The concept of “Marketing” plays a role in making profits. Marketing may lead consumers to
realize a need that might have previously gone unidentified. On the other hand a need or
want wouldn’t have realized until that product or service come to existence. When a product
is imported from another country, consumers spend money to buy them while a country may
earn foreign exchange if a product is being manufactured within the country and exported.
The ultimate international trade results the exchange of capital, goods, and services across
international borders or territories. Usually, such trade represents a significant share of gross
domestic product (GDP) of a country.
In a nutshell, commerce is a system or an environment that affects the business prospects of
an economy or a nation-state. Therefore, it supplements a complex system of companies that
try to maximize their profits by offering products and services to the market at the lowest
production cost. A system of international trade has helped to develop the world economy
while helping the countries and respective companies to be financially stabilized. In such
commercial setting more inventions would lead to more money to the country.
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7. 2.2.1 The impact of patients on the country’s typical commercial setting
According to the NIPO of Sri Lanka below statistics shows the patent acquisition among
Residents and Nonresidents of Sri Lanka.
Figure 2.2 Patent acquisition among Residents and Nonresidents of Sri Lanka
300
250
Resident
Patents
200
150
Non-resident
Patents
100
50
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
0
Source: (National Intellectual Property Office of Sri Lanka, 2012)
According to graph the Nonresidents have obtained patent in the country more than the
residence. Since the majority of Sri Lankan patent obtained for Sri Lankan products, most of
these Nonresidents obtain their patents for the inventions done by using local raw materials.
Those inventions could be considers as the commercial assets which we couldn’t acquired for
the betterment of the country’s financial setting. Therefore Patent License as an intellectual
property that could impact on the country’s typical commercial setting.
2.3
Formulating the research problem
There is legal and professional impact of transfer of patient license within a typical
commercial setting that should be researched and analyzed.
2.4
Objectives
The primary objective of the research is to study and analyze the legal and professional
impact of transfer of patient license within a typical commercial setting. Hence the overall
objectives are shown as below.

Identify the law of patent transfer
4

8. 

Research/Fact finding of legal and professional impact of Transfer of Patent license

2.5
Identify the typical commercial setting
Identify the legal and professional impact of Transfer of Patent license within a
typical commercial setting
Research methodology
The research is basically conducted as a desk-based research. It is a combination of both
qualitative and quantitative analysis based on secondary data.
These evidences were found from both online and offline sources such as World Intellectual
Property Organization (WIPO), journal articles, search engines, News paper articles and
Government publications. The information published by parliament, certain ministries or
central bank, and statistics available on WIPO were used. The statistical data from several
databases was used in the form of quantitative analysis such as graphs.
2.6
Scope and limitations
Under the Intellectual Property (IP) Act NO.36 of 2003, it covers the law of Patent,
Copyrights, Trademark and Industrial design. The different applications of those topics and
the law of obtaining, using, cancelation, transferring and outcome infringing them are
illustrated on the act. However, the research was only limited to a specific area in patenting.
It only analyzes the legal and professional impact of Transfer of Patent license with a least
focus on the law of application, obtaining or cancelation of patent.
2.7
Significance of the study
Patent license has a very high commercial value and its commercial asset which gives a lot of
financial benefits. Therefore the patent owner can earn huge amount of money by producing
the product since the owner has the monopoly. Not only manufacturing or distributing but
also the owner can sell or transfer the ownership of the patent for the financial benefits
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9. 3.0
The potential of legal and professional impacts
Transfer the ownership of patent license is legally acceptable. But every transfer agreement
should have its own conditions among both parties. Then it becomes both legal and
professional.
As discussed in above section there are several types to transfer patent for financial
acquisitions. It could be a transfer to anyone without any prerequisites. According to the law
it’s not a matter whether the assignee has any background knowledge or any other criteria to
prove that he/she is fit to make use of it properly. In some situations the assignee may not
know the actual scientific value of the invention. If so the assignee can misuse the product
only on the basis of financial benefits.
It is the patentee’s duty to provide certain conditions on the transfer agreement. But even if
the agreement is unconditional, it is valid according to the law. A patented product is an
important asset to a country. Therefore everyone is responsible to protect the value of the
product. For the purpose of protecting the value of the invention as well as inventor the
conditions that cover all sensitive areas should be enclosed to with the transfer agreement.
In case of breach of contract the patentee can take legal actions or can claim damages from
the other parties. Due to some involvement and physical and mental harassments people may
hesitate to take actions against some parties. But it encourages the people to do more and
more illicit acts just to earn money. It could damage the value of the patent as well.
With the patent transfer types such as Work-for-Hire there are no conditions in the act to
specify the salary of the employee. The salary of the employee decided according to the
company policies. Therefore whatever amount the company pay is considered legal. But an
individual or a group who does and invention is different from other employees. Therefore
the management has a duty to look after the employee and treat the employee properly.
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10. 4.0
Analysis of the legal and professional impact
4.1
Law behind transfer Patent ownership transfer
A patent application or patent may be assigned or transmitted and such assignment or
transmission shall be in writing signed by or on behalf of the contracting parties. (Intellectual
Property Act, 2003)
The patent owner is free to assign the patent ownership to anyone under the agreed
conditions. According to the law the transfer agreement should be kept in writing and all the
teams and conditions which they agreed should be enclosed in the agreement.
Any person becoming entitled by assignment or transmission to a patent application or patent
may apply to the Director-General in the prescribed manner to have such assignment or
transmission recorded in the register. (Intellectual Property Act, 2003)
The legal aspect of patent transfer is the legal acceptability and the strength of law in
transferring. It has a direct impact on the county’s commercial setting. Since the patent has
no fixed value, the assignee decides the value considering the factors such as scientific and
market value, market potential personal and financial background.
In some cases people do inventions just for the purpose of transferring the ownership to
foreign companies. It may be more profitable than manufacturing. As an example a Sri
Lankan inventor could invent a new feature for a vehicle and license the technology to a
pioneer car manufacturing company in Japan or Korea. Inventor can earn billions of dollars
by transferring without a gain to the country.
According to the IP Act No 36 of 2003 transfer of patent is a legal right which acquires by
the patent owner. But there is no restriction or minimum qualification which the assignee
should have to acquire the responsibility of the patent license. Therefore the quality the
product that the assignee is intends to maintain cannot be measured prior to the assignment.
The manufacture and sale has an impact on the Commercial and financial setting irrespective
of the way that assignee may use the product.
The assignor legally has authority to declare the terms and conditions on the assigning or
licensing agreement in respect to the act. But it is immeasurable how much does it impact on
protecting the value of patent. These conditions may impact on the commercial setting
directly or indirectly.
4.2
Patent transfer types for commercial purposes
As discussed previously the patent owner can “Licensing” or “Assigning” the patent for
commercial purposes. Then the assignee can enjoy the benefits of the invention directly.
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11. 4.2.1
Patent Licensing
According to the act “licensing” provides limited rights to the assignee to perform certain
activities subject to certain conditions and payments. The licensing process is similar to the
rent or lease property. Therefore it has been described as royalty basis transfer method.
4.2.1.1Royalty basis
The party who subjected to be assigned (assignee) will receive the patent ownership for an
agreed period or during the validity period of the patent. All the terms and conditions should
be recorded in writing and the terms could be changed subject to the patented product or
technology.
In a patent transfer, usually the royalty is pained yearly. The duration could be differing
according to the transfer agreement. The royalty amount will negotiate against the value or
the importance of the product.
The main advantage of this is while transferring royalty basis the patent owner could be
benefited if the value of the product in the market goes higher. This is a type which the patent
owner could demand for the patent value. Therefore the patentee can increase the
subscription yearly. From the business perspective this could maintain the professional aspect
of the business and earn profits as well.
The disadvantage of this type is once agreed for royalty basis the patentee has no authority to
claim the damages or cancel the ownership in case of failure of payment.
4.2.2 Patent Assignment
Patent “Assignment” is bit different from “Licensing”. The basic idea of “Assignment” is sell
the patent rights to someone else for the lump-sum consideration. If the invention has been
done as a result of the employment, the ownership, assignor, assignee and assign duration
differs according to the company policies and employment contracts as well as country to
country. The main types of patent transfer under “Assignment” are as follows;
4.2.2.1 Lump-sum sales price
According to this type the patentee negotiate for a fixed price to sell the patent ownership to
an external party. The price negotiation is same as above type, but the assignee acquiring
method is different. The assignee can pay the total prince at once and get the full ownership.
If not the assignee can pay the agreed amount in royalty basis subject to agreed conditions.
Unlike above type the royalty amount cannot be increase or decrees in this type. Since both
parties has agreed for a fixed price the assignee could be benefited incase for increment of
market value and vice versa.
8

12. Since this is one time negotiation the patentee can go for the high price and it could be more
benefited then other types.
4.2.2.2 Startup Companies
When staring an invention the money factor becomes a critical issue. Some inventers stop
their inventions due to the difficulty of finding capital.
When investors see a potential of a particular invention, they invest money as an external
party for the invention. In law, this party is known as Venture capitalist. In Startup
companies the inventor is eligible to use recourse under certain negotiable conditions with
the Venture capitalist. This is a massive advantage, the inventor will enjoy under this type.
The benefit that Venture capitalist get is once the invention got successful the ownership of
the patent license goes under the name of Venture capitalist. According to law Venture
capitalist can keep the ownership up to 8 years maximum, from the patent date. After the
duration of assignment the patent ownership will reassign to inventor.
4.2.2.3Work-for-Hire
This is usually obtained by the experiment and inventions done by companies. As employees
of the company, individuals and team do certain inventions. In such scenarios the ownership
of the patent license goes under the company name under the Sri Lankan law. Therefore the
employee or group does not get an ownership for the product. This is one of the
disadvantages from the employee perspective, but on the other hand employee can demand
for the salary and other benefits.
Apart from above there are some more points which cause disadvantages for patent owners.

The full description of the invention should be provided in the application and can be
viewed by anyone who applies for a patent from the administration office.

Once finished the exclusive patent period any party can freely use or manufacture the
invention.

Since there is no fixed value to the invention, some parties may misguide inventors
for their financial benefits.
The professional aspect of patent transfer is how the quality maintains and how much the
transfer vulnerable breach of contracts. Sometimes the transfers are legally acceptable but
professionally not. As an example, in a scenario of patent transfer the assignor can decide
whether the teams and conditions are required for the agreement or not. If it is an
unconditional agreement the assignee can misuse the invention. Then it is vulnerable to
9

13. damage the scientific value and market potential. But a conditional agreement can protect the
value of the invention. This scenario will directly impact on the typical commercial setting.
Sometimes the assignee could earn more than the inventor once the paten was transferred due
to the market completion and high supply. This is another occasion which the teams and
conditions become important. In such situation the dislike could guide people to damage the
commercial and scientific value of the invention. These things could be not illegal but not
professional and it could impact on the commercial setting as well.
The public awareness of patent license and ownership transferring is another important factor
when it comes to professional impact. In a country like Sri Lanka, people do not aware about
IP rights and punishment for IP rights violations. The less knowledge and less awareness lead
people to do more infringements of patent rights. It could damage the professionalism of
patent ownership and ownership transfer.
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14. 5.0
Conclusion
As a desk-base research the data were found for the analysis by referring the government
sources, World Wide Web and news paper articles. When critically analyze the Patent
transfer law, it was understood that the assignee gets a big responsibility on maintaining the
professionalism in managing the respective property after the transaction is being made.
Deferent transfer types are available to “Assigning” and “Licensing” that are in favor of the
protection the commercial and legal aspect of the transfer.
When analyzing the statistics published by the government, it can clearly see foreign
involvement of obtaining patent license higher than locals for the resources in Sri Lanka. The
outcome of that is local inventors are deprived of benefits from certain resources where the
country could have gained more financial benefits otherwise. If foreigners obtain the license,
they use local manpower to earn money by licensing the technology to local companies
which is not advantages to Sri Lanka. The professionalism of a transfer usually maintains due
to the conditions which both parties agreed for the sake of protecting the scientific and
commercial value of the inventions.
Analyzing the above factors it could see that there is a substantial impact of transfer of patent
license in a typical commercial setting. In this aspect the public awareness about the concept
of patenting play a vital role thus it should properly guide people when obtaining and
transferring patent.
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15. 6.0
Bibliography
Intellectual Property Act. (2003). Chapter XVI. 88. (1). National Intellectual Property Office
of Sri Lanka.
Intellectual Property Act. (2003). No. 36. Chapter XVI. 88. (2). National Intellectual
Property Office of Sri Lanka.
National Intellectual Property Office of Sri Lanka, 2012. Information and Statistics. [online]
National Intellectual Property Office of Sri Lanka. Available at:
<http://www.nipo.gov.lk/satistic.htm> [Accessed 8 February 2013]
Sandirigama, M. (2008). Intellectual Property : A Quick Guide for Scientists and
Technologists. Peradeniya: Science Education Unit - University of Peradeniya.
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